Due to the increasing awareness among youngsters, especially on social media, crypto trading has become quite a rage these days. However, it is your hard-earned money that you will be parting with and hence you need to be doing your due diligence.
If social media influencers are to be believed then you will make millions out of just a few trades. While experienced traders and investors will cut through the crap and look for genuine advice, newbie investors are more vulnerable and may fall prey to such unsolicited advice.
With that in mind, here we look at the top five crypto trading tips that will help you with the initial part of your crypto trading journey.
Decide a motive for trading –
This is a general rule of finance. Whenever you save money and then decide to invest it in any instrument, you must have a goal in your mind. Apart from deciding a motive for trading, you should also decide a time horizon during which you want to stay invested in the instrument.
The same goes for crypto. First, you need to know that crypto markets are highly volatile. At the same time, there are some big players who can manipulate the crypto markets with just a single tweet. If you have your motive clear, you will trade accordingly and save yourself from being a victim of such volatility.
Don’t trade just to appear cool –
This is a fundamental point. At no point should you be indulging in crypto trading just because of peer pressure. Yes, there is no harm in learning from your colleagues and friends but to follow them blindly is something unwarranted.
The correct manner in which you should go about your first few crypto trades is two fold. First, you should speak to friends and colleagues who you can trust when it comes to financial decisions. Second, you should do your own research on crypto currency trading. There are lots of basic aspects about crypto that you can read off the internet.
Give importance to market cap –
In crypto trading, since there are so many options available and there is no regulator as such to prescribe certain criteria for a stable and reliable cryptocurrency, it becomes difficult for traders to decide which crypto coin to trade-in.
In such a precarious situation, what young traders do is look at those coins which are available at a cheaper rate and buy a large quantity hoping that one day they will be owners of a fortune. This is the worst thing to do. One should instead look at currencies that have a bigger market cap as it signals that more traders and investors have reposed their faith in them.
Wherever there is a risk, the solution is to diversify. The same goes for crypto trading. A major difference between crypto trading and stock trading is that there is a lot of fundamental analysis that can be done for stocks and there is something called the intrinsic value of a stock. However, there is no underlying asset in a crypto coin.
As stated earlier, there are times when a mere tweet may lead to massive disruptions in crypto markets. For precisely this reason, it is important to invest or trade-in asset classes apart from crypto too so that if crypto falters, your risk is reduced.
Opt for automated trading –
Apart from the fact that there is no fundamental asset class behind a crypto coin, there is another clear difference between traditional investments and crypto. This is because while stock and bond markets are open for a specified time during the day, crypto markets are functional 24*7 and hence in order to make a significant impact through trading, one needs to opt for automated trading based on a predetermined strategy.
At the end of the day, one needs to realize that crypto trading requires knowledge and patience like all other forms of trading.