If you’re looking for a new investment this year, one of your choices should be cryptocurrency exchange. Cryptocurrency is digital currencies like Bitcoin, Ethereum, and many more. Just like fiat currencies, you can trade and invest in such. However, cryptos are more volatile than fiat currencies meaning that their value could wildly vary within a day. Unlike fiat currencies or stocks, you can buy or sell cryptos at any time of the day and the night.
From experience brokers, following these tips can help you earn as much as you want in cryptocurrency exchange or trading:
1. Set Profit Targets
One of the good things you should do is set up your profit target, which means you should have a definite number when to sell your cryptos. Before doing so, you may need to research your target cryptos and crypto exchange platforms before buying and using them. According to this list of the top cryptocurrency exchanges, there are many factors you also need to consider before using a crypto exchange platform.
When you’ve set up your crypto exchange platform, you should also understand the crypto’s history, its founding members, daily trading volume, circulating supply, the price per coin, and their market caps. This basic information can help you determine whether the crypto is worth investing or it’ll easily crumble. That’s why you should read the crypto’s Whitepaper, so you’ll understand what their roadmap is, the vision behind it, and the like. Without such, you should be wary of buying the crypto.
After your thorough research, you can then set the number of coins or cryptos to buy. Depending on your budget, it’s best if you wouldn’t put all your money into one type of coin. It’s best if you’ll buy two or more coins as long as you can still manage them.
2. Use Stop Losses
In cryptocurrency exchange platforms like CoinSwitch, they’ve got a stop-loss feature that you should use. Also, according to this review of CoinSwitch, many traders use this platform because of its features aside from the stop-loss order. Going back, a stop-loss order allows you to set up a maximum amount of order to minimize your loss. When trading, you shouldn’t only plan on the profit, but also on how you can reduce or stop your loss.
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Especially that some cryptos with a very low price sometimes don’t go up, using a stop-loss order will prevent you from losing a lot. Worse case is when some of the cryptos vanish into thin air. Well, if you’re too unlucky and you hoped and prayed that it’d go back to its glory, then it’s best to use a stop-loss order.
For instance, you can set a minimum amount of how much you’re willing to sell your coin if the price continues to go low. That way, even if you’re not staring at your screen, you can get out of the coin’s market when you’ve set up your stop-loss order.
3. Manage Your Risks
Another tip you should remember is to plan on how to manage your risks. In crypto trading, the risk is inevitable, and it refers to negative outcomes beyond your objective. As a result, it can lead to losses.
To avoid such losses, aside from using the stop-loss order, here are two strategies you can use to manage such risks according to the known rules of trading cryptos:
- Position Sizing – It simply means you shouldn’t put all your money in crypto trading. When you do so, the risk of losing it all is higher, given the volatility of cryptos. Thus, you should only trade or invest the amount that wouldn’t hurt your finances if worse comes to worst.
- Risk/Reward Ratio – As they say, the higher the risk, the more profitable the investment is. This is also true in crypto trading wherein you compare the potential returns with that of the actual level of risk. Most traders use this formula to determine the ratio of trading: R = (Target Price – Entry Price) / (Entry Price – Stop Loss). Whatever the ratio is, you should use it so that you won’t have to trade on a ratio lower or higher than the result.
As mentioned earlier, it’s best to diversify when investing or trading cryptos. This means that you should buy not only one or two cryptos. Aside from researching the basic info of coins, you should invest in, your portfolio should have coins with the following categories:
- Founding Crypto – To cut it short, trading Bitcoin should be one of your choices as it’s the founding father of cryptos. Aside from having the largest market cap, Bitcoin is also necessary to buy another type of crypto.
- Most Popular – Aside from base crypto, you should also buy crypto based on its popularity. Popular crypto is a coin being developed actively and is already established as a credible coin. This means that you can expect more innovations of the coin, which can also stabilize your portfolio.
- Passive Income Provider – Aside from being popular and base crypto, you should also choose coins that let you earn passive income. Some coins give out free coins bi-annually, quarterly, or monthly when you hold such coins. Thus, these coins can add more value to your portfolio.
Learning from experienced crypto traders can help you grow your portfolio. Although there are more tips not mentioned, the above are the most popular methods that most experts use. By setting up your target profits, you won’t have to go crazy when the price of your crypto goes high. And if it goes too low, you can save up your loss when you use stop-loss orders. Aside from that, managing risks in crypto trading become easier when you follow the ones recommended. Lastly, the best strategy when trading crypto is to diversify or buy coins that are under the mentioned categories.