The basic principles of sound crypto trading

Crypto trading is unlike trading any other asset, which can make for exciting times spent in the charts.

While Bitcoin is over a decade old, in the world of trading crypto is still very much a new adventurous frontier. There are huge gains to be made, and conversely staggering losses to be suffered. Your gains will only outweigh your losses in the long run if you develop a strategy and trading style.

There are lots of things you can learn to master the markets such as how to perform fundamental analysis to dig into the context of the asset you want to trade, or technical analysis with an endless array of technical indicators to gauge market sentiment played out on the charts.

But before you get to that stage, there are some basic principles all crypto traders should abide by. Stick to these principles as you develop your own crypto trading style to protect yourself from making avoidable mistakes.

1: Never invest more than you can afford to lose

Trading crypto is high risk investing, so you should only allocate an amount which you can afford to lose. All cryptocurrencies are highly volatile, and years’ worth of gains could be wiped out in shockingly short timeframes.

The regular stock market goes through its own swings, but comparatively it is a much more stable market that has proven to yield positive results in the long run. Crypto is still new. Being on the frontlines and exploring new territory is exciting, but with that comes risk.

2. Do the legwork yourself

The list of crypto assets to invest in is long, and it keeps growing with new companies and projects developing new and innovative ways to keep moving the industry forward. Twitter and other platforms are full of people promoting different coins for traders, but as with any investment prospect – don’t take anyone’s word but your own when it comes to choosing what to invest in.

That means you need to do the legwork yourself. Look into the fundamentals of a coin, the company behind it, the purpose and utility of the coin, the existing markets, liquidity, availability on different exchanges and so on.

3. Reject FOMO

There’s a lot of hype around cryptocurrency. Whenever Bitcoin goes up (or down) dramatically, you’ll get alerts from your crypto apps, Crypto Twitter lights up, crypto media shouts “extra, extra, read all about it”, and if we’re talking really big numbers some traditional financial media will start reporting on it too. You might start feeling like you’ve missed out on a huge opportunity, and you don’t want to miss it, or maybe you think there’s some gains left on the table for you to capture.

That feeling is FOMO, or Fear Of Missing Out, and you must reject that feeling. Trading with FOMO in the driver’s seat is bound to set you up for even more risky trades, unfavorable positions and you’ll likely break from your original strategy. Reject FOMO at all times.

This is part of building up your maturity as a trader, and eventually, once this culture of considered trading takes root in the crypto community, we can expect more growth.

4. Diversification is everything

One way to minimize risk is to diversify your portfolio across assets. Within crypto, you can further diversify between different currencies to spread out your exposure as a hedge against market swings.

This only works if you diversify across assets that aren’t closely correlated. For example, in the regular stock market buying shares in Visa and MasterCard is not diversification – they are similar companies in the exact same industry. What affects one, will most probably affect the other similarly.

5. Take profits strategically

This kind of depends on your own crypto trading style. But for short-, medium- and long-term traders there will be moments when the value of your holdings are up. You can choose to do nothing if you expect the price to go further up, but at some point there will be a down turn. Redeem your profits at strategic intervals to lock those gains in. Then at a lower point you can re-invest those gains to multiply your gains during the next uptrend.

This is essentially what day traders do, but the same can be applied in a different timeframe if you’re trading long term. To see what the market will likely do, you can look at historical data in the charts, but for crypto it may make more sense to use technical indicators that generate signals for long-term traders.

7. Always sharpen your skills

Your job to educate yourself is never finished. Keep learning new ways to read the charts and orderbooks, mastering new tools in your technical indicator repertoire, identifying opportunities reading crypto news.

With a thirst for knowledge, you can be ahead of the pack instead of the back.

Are you ready to put your skills to the test? 

AAX is the world’s first digital asset exchange to be powered by LSEG Technology. Offering OTC, spot, and futures, it provides a highly secure, deeply liquid and ultra-low latency trading environment; and a meeting point between crypto and global finance. 

Open an account with AAX, or download the app, and experience the next generation crypto exchange.

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