Rules for Trading Cryptocurrencies
The crypto fever has engulfed the entire Middle East. You must have read news about many commoners becoming millionaires via cryptocurrency trading. Investors have shared stories of how a mere trading capital of $200 has reaped profits of $20,000 in few weeks for them. With due consideration towards the return on investment, the cryptocurrency market is by far the most attractive market right now. However, not every trading experience results in a desirable ending. There are certain rules that must be followed for trading cryptocurrencies in order to gain significant profits.
Many people become delusional and obsessed after hearing about the successes of a single cryptocurrency in the news. For instance, the price for Nano, which is a crypto asset, climbed from $3 to $37 in a few days time. That is more than a 10 times increase! Surges like these lure traders to invest all their capital into a single asset.
While a crypto may appear extremely lucrative to you, investing all your trading capital into a single asset is generally considered an undesirable practice in all traditional markets and the same thing rings true for cryptocurrency trading too. Therefore, pick a number of cryptocurrencies that you find promising and diversify your trading capital into them.
A common effective trading strategy, used by most experts, is to put 40% of your investment into top cryptocurrencies like Bitcoin, Ethereum and Litecoin, while 30% is reserved for other popular cryptocurrencies ranked in the top 50 or 100. The left over 30% is to be used for cryptocurrencies that are currently under-rated and have not caught the eyes of the investors yet.
Avoid Investing Lifetime Savings
Although cryptocurrency trading currently provides maximum profits and return on investment, industry experts do not recommend investing all of your lifetime savings in the market; the reason being the high volatility of the market, and the fluctuations seen recently.
Small investments made after due contemplation are enough for earning substantial capital in the crypto world. Since you can always increase your capital by reinvesting a portion of your profits, only invest money that you can afford to lose.
Maintaining the Balance
All crypto-traders that have traded assets in the market are familiar with the term HODL, which means to invest in a cryptocurrency and patiently wait for the rewards to come by. One of the biggest dilemmas facing traders when it comes to trading cryptocurrencies is to maintain a balance between traditional trading and crypto HODLing.
While some traders are impatient and sell their assets whenever there is an opportunity for a profit, other experienced ones wait for the asset to mature and achieve the desirable results that it is capable of, before cashing on the gains. Both these strategies have their own pros and cons. While regular trading can ensure minimum risks and steady profits, HODLing is riskier, but a lot more profitable in the long run.
So, which one to follow? The perfect trading rule would be to adopt both these techniques by using half of the cryptocurrency amount for regular trading and the other half for HODLing.
Not only do cryptocurrencies have the potential to witness a 10 times increase, but they can experience a similar decrease as well. Therefore, most professional traders tend to follow a certain trading rule known as stop-loss. In stop-loss trading, a price is set to sell the asset in the worst case scenario of a cryptocurrency, so the crypto can be sold before its price crashes too deeply.
By following these rules, one can minimize their losses and register considerable profits.