Cryptocurrency trading can be very profitable and rewarding, but you can also lose a lot of money if you take unjustified risks. Of course, even if you don’t, the market is unpredictable and you can always end up in the red. If you want to minimize the risks of doing so, these six strategies show you how to stay safe when negotiating cryptography.
1. Don’t invest more than you can afford to lose
I believe you’ve heard of this rule before, but it never hurts to repeat it – don’t invest more than you can afford to lose. Crypto markets are volatile, and huge fluctuations in the price of a currency happen all the time. While it is highly unlikely that your coins will end at 0, it is entirely possible that your value will drop two, three or more times in a day or two. Sure, it can go up in a week or more, but don’t bet your life on it. To sleep well, do not invest more than money in your pocket – at least not in the beginning, when you are new to the crypto trade.
2. Diversify your portfolio
If you are trading only one or two currencies, you can lose a lot if / when those currencies fall. If these coin (s) win, you can also win big, but don’t count on it. To stay on the safe side, always trade multiple currencies, not just one or two. There is not an ideal number of currencies to trade, but at least five or ten is a good bet. In this way, even if one or two currencies fall, your total will still increase if the other currencies perform decent.
3. Don’t limit yourself to just one exchange
To spread the risk, in addition to trading multiple currencies, you must also plan for multiple exchanges. Again, there is not an ideal number, but if you divide your assets between at least three to five exchanges with perhaps three to five currencies in each exchange, this is a good diversification. In addition, you minimize the risk in the not-so-unlikely event that an exchange is hacked or disappears (along with your money), because if that happens, not all of your money will be lost.
4. Avoid risky trades, even if they appear profitable
Greed is a great motivator, and when you see a currency with good variations on the last day, week or month, you instinctively want to bet on it. However, this is less rational and more risky behavior. If there are large variations or drastic spikes in the price of a currency, it may be due to a bomb attack and dumping on that currency or simply a coincidence. As a result, it is very likely that the price of that currency will drop in the next few hours or days, along with your money. Always put your money in currencies with a more uniform trend – your profits may not be as high as when you trade risky currencies, but neither will your losses.
5. Play losers quickly to minimize losses
Even the best and most experienced traders cannot always predict the market and end up with currencies they would rather not have. In this case, a strategy is just to insure – that is, don’t sell the coins now, but wait for the price to rise again. In many cases, you don’t have to wait long – a few days or a week until the trend is reversed and the price is right (again).
However, in many other cases, the dive is over. This means not only that you have lost money in this transaction, but that the rest of your money is blocked and you cannot use it elsewhere. In such situations, the best you can do is to sell at a loss, to free up your money. Unfortunately, there is no recipe for when to insure and when to sell at a loss – you need to trust your intuition, but when you are a beginner, your intuition is not always wise.
6. Don’t lose your sanity with the crypto commerce
Finally, don’t let the crypto commerce take over your life! Don’t lose sleep (and sanity) with it, don’t spend fourteen hours a day in front of the computer and earn a living! Even if you make a lot of money as a crypto trader, it is hardly worth your health and social life – just know where to set limits.
I could give you more advanced tips on how to stay safe when negotiating cryptography, but as this is a beginner’s article, I’ll stop here. I have covered the basics and more, and I believe these tips will be useful for anyone who is starting out as a cryptocurrency or who is considering this option.