As the saying goes, it takes money to make money. Many beginning traders are blinded by the promise of making boatloads of cash without leaving the comfort of their couch. This is a false reality unless they already have significant capital to trade with.
A trader who wants to be a professional needs to be able to support their entire life with trading – that means their profit must cover their living expenses, without eating into their trading capital. In most parts of the world, this requires at least $50,000 – $100,000 to trade with, and a steady profit of 10% monthly.
In reality, this is very difficult to achieve. As a result, many beginning traders find themselves under a great deal of stress when their expected trading returns fail to align with the actual results they produce.
In crypto, people are drawn to the idea of earning life changing money by being in the right place at the right time. As a result, they go all-in on crypto, risking everything on what is effectively a lottery ticket.
Successful traders have a plan. Part of trading with a plan is holding oneself accountable for your actions. The only way to do this is by recording the details of a trade. This is the best way to learn and avoid repeating trading mistakes. Keep a journal and refer back to it. Record your thought process, emotional state and the trade results. It will help you immensely.
Investing and trading are different! Investors average down positions in fundamentally sound assets with a long time horizon. Traders have defined levels of risk and invalidation for their trades. When their stop loss hits, the trade has been invalidated and they should move on to another asset. Period. Never average down as a trader.
Successful traders maintain a balanced portfolio. Personally, I only have 10% of my wealth in crypto. Within my crypto portfolio, 70% is long term holds (heavily weighted to Bitcoin), with 15% in cash and 15% for trading. I only trade with 15% of my portfolio and that portfolio as a whole is only 10% of my net worth.
Rebalancing is the process of returning your portfolio to its target asset allocation as outlined in your investment plan. Rebalancing is difficult because it may force you to sell the asset class that is performing well and buy more of your worst-performing asset class. This contrarian action is very difficult for many novice investors.
Beginning traders tend to trade emotionally, which manifests in refusing to quickly accept losses. The most essential skill that a trader must possess is the ability to accept a loss and move on to the next trade. Failure to do this is the main reason traders lose money. Set a stop loss, and do not move it when the trade goes against you, as this behavior is likely to blow up your account.
There is no reason for a beginning trader to use real money when there are endless resources and platforms for paper trading, including Tradingview. Anyone interested in becoming a professional trader should first develop a system based on a simple set of guidelines for their entries, exits and risk management. This should not be done with actual money. Paper trade until you are ready to lose your mind, then paper trade some more.
With no central exchange and little regulation in place, the bitcoin market is, unfortunately, an ideal environment for scammers.
Fake exchanges and wallets are common, as are phishing scams where fraudulent emails direct you to scam sites identical to the platforms you use to capture sensitive data.
Ponzi schemes, which work on a pyramid structure, offer increased returns for investors that recruit other investors and should be avoided at all costs.
Malware is, of course, another issue and without proper security measures around your bitcoin wallet, you leave yourself open to the threat of having your account emptied.
These are just some of the scams to watch out for and, as bitcoin trading is such an open, complicated and relatively new market, new threats pop up regularly.
So, the last of our 10 bitcoin trading tips is to keep your wits about you, be aware of anything untoward and put robust safety measures into action.
Alongside bitcoin trading tips involving risk management and strategy, there are also emotional factors that you need to be aware of, most notably, the fear of missing out (FOMO).
Due to bitcoin’s extreme volatility, it is not unusual to see dramatic price spikes in a very short space of time and it can be tempting to buy-in to an upward trend, fearing you’ll miss out on major profit if you don’t.
However, this goes against the most basic rule of trading – buy low, sell high.
If bitcoin has skyrocketed, it’s likely you’ve already missed the advantageous point of the upward trend, and you’ll end up paying a premium for an asset that will inevitably decrease in value, placing you at a significant loss.
Falling victim to FOMO is one of the main reasons so many beginner traders fail. Be wary and accept that some profitable opportunities just weren’t meant for you.
As discussed earlier, there are several types of bitcoin trading strategies. The buy and hold approach is a passive strategy where positions are held anywhere from weeks to years.
There are multiple benefits to this:
Buying and holding bitcoin allows you to bypass its short-term volatility. It’s not unusual to see significant movement throughout any given day which can mean your stop loss and take profit targets are easily met, throwing you out of your trade.
This, in turn, can lead to overtrading, and since opening a new position is costly, overtrading can seriously eat into your profits.
As a passive trader, you can keep your position open and potentially earn a good profit with little time commitment, but you still need to have a robust risk-management strategy in place, with carefully considered stop-loss orders.