The buying and selling of cryptocurrency are often associated with strong emotional stress. Firstly, the bidding is conducted fast, and secondly, you can easily get lost in many different types of deals and orders. Some people try to capitalize on short-term price volatility by opening and closing positions during the day. Others prefer to keep long-term investments and hope that the cryptocurrencies bought by them will go up.
All of this makes cryptotrading a potentially profitable business. But there is also the risk of becoming a victim to FOMO (Fear of missing out) and FUD (Fear, uncertainty and doubt) and starting to make decisions based on emotions, but not facts. To reduce risk and not lose money, it is important to keep emotions under control. This guide will help you limit the impact of emotions on your decisions.
1. Make a plan
Before entering upon a trade, it is important to have a clear idea of the objectives. Before buying any cryptocurrency, ask yourself the following questions:
How does a cryptocurrency purchase fit in to the overall financial plan?
Are there other savings?
If there is nothing, is cryptocurrency really the best way for you to start investing?
Is it worth investing in a safer asset?
Can you afford to lose all the money invested in cryptocurrency? How are you going to act: buy cryptocurrency for a long term, or trade them?
2. Conduct research
It is extremely important to study additionally the cryptocurrency chosen for purchase (and the technologies underlying it). It is necessary to read the White Paper project. Prefer cryptocurrency with promising technologies and an active community. Although these two factors don’t guarantee success, they will help to better understand what you are buying.
3. Select a suitable trading platform
Try to determine which trading platform will help you achieve the goals of the plan. Some offer dozens of different coins for trading, others support only a few. Some allow you to sell/buy cryptocurrencies for Dollars and Euros, others work only with digital assets. It is very important to understand what is right for you. Here are some aspects to consider.
Working with the exchange located in your country helps to resolve all legal issues. In addition, it is possible to replenish and withdraw funds from an account in local currency with the help of a bank.
- Available cryptocurrency and trading pairs
What coins and trading pairs are available on the exchange? Can I buy digital currencies for ordinary money or only for other cryptocurrencies, such as Bitcoin? For long-term investments, a stock exchange with a small number of pairs is best suited. On the other hand, for speculations and intraday trading, you may need a platform with extended trading functionality.
Platform security has crucial importance. How does the login procedure work? The tougher the limits are, the better option it is. Make sure that the platform is doing everything possible to protect the funds of investors. Check out the news and reviews about the exchange. Another part of this question is related to the availability of support, which will have to be addressed if something goes wrong.
4. Set limits
You need to determine in advance how much money you are willing to spend and stick to this limit. The size of the investment depends on the plan (see clause 1). Investing in cryptocurrency carries significant risk, so you should invest only money that you can lose. Set a limit, stick to it! Don’t become a slave to FOMO. This can lead to disaster.
5. Use Stop Orders
Stop order will help protect against losses in the event of a rapid fall in prices. It allows you to limit losses by setting a minimum acceptable price for a trader. Also, these orders allow you to fix profits. For example, a trader bought a cryptocurrency at $ 20 in anticipation of rapid growth. He can put a stop-loss at $ 19.95. If the price drops to it, the platform will automatically close the position at $ 19.95. If the coin goes up to $ 25, you can raise the stop-loss to $ 24. Most exchanges allow you to place Stop / Limit Orders. Before you start trading, learn how to work with different types of orders. There is nothing difficult in this — stop-loss helps to limit losses and protect profits.
6. Don’t focus on price charts
At the present stage of development, the cryptocurrency market is prone to sharp fluctuations. The high attractiveness for traders is partly because of this. Prices can change in seconds, creating a lot of opportunities for profit. At the same time, high volatility is exhausting emotionally. Excessive attention to market fluctuations can cause emotional distress — and ultimately cause panic sales or unwarranted purchases under the influence of FOMO. Charts are indeed a valuable trading tool, but you shouldn’t look at them around the clock — it will prevent you from keeping emotions under control.