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October 29, 2020

6 Strategies For A Successful Cryptocurrency Trader

If you’re planning to venture into the world of cryptocurrency trading, having a tried-and-tested strategy will prevent you from making costly mistakes and ensure that you’re always at the top of your game.  

Here are 6 strategies that you can try out to have a successful and rewarding trading experience: 

Choose The Right Exchange 

Before you start trading, it’s always a good idea to find the best cryptocurrency platform that specifically addresses all your needs and requirements.  

Here are some tips to help you choose the right exchange: 

1. Be on the lookout for any warning signs. 

There are tons of fraudulent exchanges that are only out there to take your money. Make sure that the exchange platform has a verifiable physical address. This is important for the following reasons: 

  • Transparency with their headquarters and location is a good indicator of legitimacy. 
  • Knowing where the exchange is based will let you know which laws and regulations affect your assets. 
  • If your account ever gets hacked, having the exchange’s address and contact details will make it easier for you to involve law enforcement and regulatory agencies with your problem.

2. Choose an exchange that offers a higher level of security.

Remember that ease of entry into the exchange is inversely proportional to its level of security. You want to know that the exchange does a thorough job of vetting its users. You don’t want to conduct your trades in an exchange where anyone can just create an account and start trading on the same day. 

4. Look into the fees they charge and the currency pairs that are on offer.

Most exchanges will charge fees on most trading activities. Make sure that these fees are reasonable and are at par with the industry standard. Additionally, research about the cryptocurrency pairs offered by the exchange. Most of the popular platforms only have a limited selection of digital currencies. So, if you’re looking for more obscure altcoins, do some more digging. 

Remember that the exchange you choose will serve as the digital wallet for your cryptocurrencies, so never settle for one unless you have done your research.  

Use Tools To Give You Leverage   

Whether they’re on the traditional or cryptocurrency market, any trader worth his salt needs to consistently keep up with the latest news and developments affecting their assets. Reacting even a few seconds too late to major events can lead to significant losses or profits. However, it’s impossible for any trader to stay on top of everything 24/7. 

This is why many successful traders turn to apps and softwareThese tools allow you to trade on a user-friendly and responsive interface and monitor charts for multiple digital currencies.  

Here are some of the things that you can do with a cryptocurrency trading software: 

  • Monitor live market data from different exchanges 
  • Automatically trade using designated trading rules, such as statistical arbitrage and other technical indicators 
  • Analyze the market and detect price increases or drops using trading signals 
  • Set up automatic withdrawals and deposits across exchanges 
  • Set trade limits, which restrict the extent to which the software can trade on your behalf, to reduce losses 
  • Simultaneously trade currency pairs in different exchanges 
  • Execute large-scale cryptocurrency orders using preset execution algorithms 

The right software should be a worthwhile investment. It should serve as your partner in ensuring effective, accurate, and profitable trade orders, so make sure that you choose well. 

Buy Low, Sell High 

One of the oft-used strategies in the cryptocurrency market is to stick with one coin and accumulate it while it is at its lowest price or when it’s still dropping in value. During this time, most traders and investors will withdraw some, if not all, of their investment, which will further drive the price of coin down.  

However, if the coin is something you’ve researched thoroughly beforehand and if you believe in its potential, stick with it and hold. In fact, it’s often more profitable to purchase when the coin has already hit its first dip since this will cause the coin’s price to go even lower than its initial ICO price.  

After all, succeeding at cryptocurrency trading is a matter of timing. The most successful traders withstood dips and price crashes, waited until the coin was able to regain its footing, and sold when the price is at its highest to maximize their profits. 

Only Invest What You Can Lose 

Never invest money that you can’t afford to lose. This is a classic strategy in any market but is especially true in the world of cryptocurrency. Losses for cryptocurrency traders are not just caused by dips in the market. Other unpredictable events, such as bugs, hacks, and government regulation can lead to significant monetary losses. 

For this reason, regularly assess your current financial situation. The money that you choose to invest in digital currencies should not be purchased through the following means: 

  • Using credit cards that you can’t pay for 
  • Applying for loans 
  • Taking out mortgages 
  • Selling all your worldly possessions  

Remember that a good rule of thumb is to consider the money that you invest in cryptocurrency as money that you’ll never see again. This will definitely make you think twice about compromising your financial health just so you don’t miss out on the bandwagon. 

Be On The Lookout For Breakouts 

When done correctly, taking advantage of breakouts can be very profitable. Breakouts happen when the price of the cryptocurrency moves outside of defined resistance or support levels in increasing volume. They allow you to profit during the initial stages of a trend. 

Make sure that you buy at a specific entry, where you can determine support or resistance areas that are about to move into new directions. Some of the chart patterns to look out for are flags, triangles, and head and shoulder patterns.   

Diversify

One of the most important strategies in cryptocurrency trading is to ensure that you have a diversified portfolio. This involves spreading your capital among a selection of currencies so that you’re not dependent on a single coin for all of your returns. 

Here are some of the key benefits of diversification: 

  • Reduce risk

    Every investment has some amount of risk. Because of the infancy and volatility of the cryptocurrency market, the level of risk involved tends to be higher for traders.  

While you can’t completely eliminate risk, there are strategies that help you manage the level of risk you take on and diversifying your portfolio is on the top of that list. 

  • Preserve your capital

    Although the goal of most traders is to increase their capital, there are some instances that require you to focus on preserving your capital.  

Diversification allows you to easily protect your capital since the funds and risk levels are allocated to different coins. 

  • Hedge your portfolio

    Diversification can allow your portfolio to grow both when one currency booms and returns crumble in another one. 

Diversifying allows you to minimize losses and maximize returns by investing in different cryptocurrencies that would react differently to the same event or factor. 

Conclusion 

Because of the highly speculative and volatile nature of the cryptocurrency market today, it’s never a good idea to enter it without doing your research and having a clear strategy to implement. These will allow you to make the most informed decisions possible. 

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