Since 2017, the cryptocurrency market has witnessed an array of surges and falls. However, over the past few years, it has matured and evolved into a more predictable environment, while entry points remain relatively low.
This article is aimed at helping aspiring investors and guiding their first steps to success in this perspective and ever-changing market.
1. Don’t ignore stop-loss
It’s simple — if you forget to place a stop-loss order, your risk exposure surges to 100%. In other words, if you invest $500 in a coin and ten days after it drops by 70%, your trade loss will be around $350.
To avoid an unnecessary risk and unjustified loss, you can start using a slew of online technical analysis tools geared to help you define an optimal stop-loss price.
Support and resistance lines show the key price levels at which you can expect the strongest volatility. The price tends to bounce off the support line, but, if breached, it can plunge even deeper. On the other hand, the price can revert from the resistance line, but, if breached, it can go even higher (which is a bad scenario for your short-sell futures position).
Tip: for a long position, set your stop-loss below the key support line. For a short position, set your stop-loss above the key resistance line.
Tip: do not hold onto a losing trade anticipating the price to revert. Enter the market at a better price, once the market consolidates.
2. Never put all eggs in one basket
Diversification is not just a fancy word used in the hedge fund industry. Moreover, it’s not just about mixing your portfolio with various coins to spread the risk exposure.
You will achieve the ultimate level of diversification when you start using several strategies and crypto investment products at once.
Bitsgap automated trading ensures traders have all the instruments to minimize their risk exposure. Robots allocate your total investment proportionately per each limit sell and limit buy order, be it ten or even 180 limit orders (also known as grid levels).
In the case the price of your coin falls, the activated SBot or Classic bot will “buy the dip” step by step. This adjusts your entry price and makes it lower, which is good if, afterwards, the price of the coin reverts.
Consider investing in multiple products to diversify the risk. Automated bots bring you returns by buying coins low and selling high. Smart trading is pure speculation. Passive income strategies can generate small, but most secure returns in crypto.
Tip: Distribute your funds across several investment strategies or products. It can be 50% of your total investment allocated to trading bots, and 20% to passive income, but don’t forget to have something in stock for smart trading as well.
3. Lock in profits
Locking in your profits is a key point of trading. The money you have earned, or realized return, can serve for opening new trades. Remember about the market volatility, as one day your unrealized return from the same open position can be $500, and the next day it may drop to as low as $200.
Make sure to set take profit orders to lock in some returns. No need to sell the entire position. You can set multiple take profits to minimize the risk exposure and maximize the return. Just like in the sample scenario below:
4. Try new things
Various trade modes like the Bitsgap demo mode allow for trading risk-free. Use this mode, to sharpen your skills and work out successful trading strategies. This is your sandbox for all sorts of investment experiments. Learn risk management and profit maximization without putting your funds at risk.
The market is constantly evolving and eventually finds the way to leverage even the most successful trading moves. When you notice your strategy doesn’t perform as good as you expect, consider locking current profits and continue trading in the demo mode to adapt to new market conditions. Once you feel yourself ready, come back to beat the market again!
5. Conduct research
Getting emotional and ignoring risk management principles can play against you and result in FOMO ("Fear of Missing Out").
Buying cryptocurrency without placing take profit and stop-loss orders on an overbought market substantially increases the risk of heavy losses.
Tip: Do not get influenced by market biases. Apply technical and fundamental analysis to find the best moment to enter/exit the market.
Following these five simple steps may not only insure you against potential losses, but also bring you more profits. Do not get greedy and stick with the plan that you set.
Make necessary adjustments depending on current market conditions. Look for new investment opportunities to diversify the risk and increase your odds of success.