With cutting-edge technology, industry-specific use cases, and tons of available coins, cryptocurrency has attracted a massive influx of eager traders. As you’re reading this, millions of crypto investors are entering the market with hopes of making a profit.
However, as profitable as crypto can be, it still carries its fair share of risk and complexities. Therefore, navigating the cryptocurrency market requires more than just an interest in making a profit. Whether you’re a beginner trader or a crypto veteran, there are several rules that we recommend you follow. These rules will serve as a compass to help you steer through the volatile trading landscape, avoid risks, and develop a successful crypto strategy.
If you want to reach your full potential, avoid making costly mistakes, and make the most of your crypto trading experience, simply follow these six valuable rules:
1) Invest in What You Understand
First and foremost, you should only ever invest in what you understand. But what does this actually mean? When we say this, we’re referring to doing extensive research on potential crypto assets before buying them.
As you’re probably aware, there are thousands of cryptocurrencies to invest in, each with unique attributes, use cases, and market caps. As tempting as it can be to trade the first coin that catches your eye, this is not a good trading strategy. Investing in a coin you know nothing about can end in disaster, as you won’t be able to make any informed trading decisions.
If you find a coin that piques your interest, you should start investigating it. Ideally, you’ll want to know the answers to the following questions before buying any crypto:
- What problem does the coin’s team aim to solve?
- How will the coin function?
- What is the current price of the coin?
- What is the coin’s circulation, total, and maximum supply?
- Is the project sustainable?
- What does the coin’s future roadmap look like?
- Where can the coin be traded?
You can find the answers to these questions by reading the coin’s whitepaper, checking the project’s social media platforms, and finding it on a crypto marketplace such as CoinMarketCap.
2) Stay Up-To-Date
The crypto market is constantly changing. Because of this, cryptocurrency prices are always fluctuating. In some cases, a coin’s price can drop suddenly due to external economic situations, leaving thousands of traders with losses. Although it's impossible for anyone to accurately predict the price of coins, they can still make informed assumptions by staying up-to-date with political, economic, and market-related news.
That’s why we recommend regularly checking reputable news outlets that cover reverent topics. You can also take a look at (or even participate in) online discussions regarding cryptocurrency and trading. For instance, the popular subreddit r/cryptocurrency has over 6.6 million members and often engages in important analyses and discussions related to crypto.
By going this extra mile, you’ll gain much more industry insight that can set you apart from other traders. Furthermore, the additional knowledge you acquire can help improve your skills and allow you to refine your crypto trading strategies.
3) Learn How To Avoid Scams
Unfortunately, for us traders, engaging in the crypto world can be high risk. No, we’re not just talking about the volatility of crypto coins; we’re talking about scammers. It’s no secret that the cryptocurrency industry is highly profitable, and due to this, scammers have flocked to it. To ensure you don’t put yourself at risk of losing your funds or having your privacy invaded, it’s vital to understand how to identify and avoid scams.
To help you out, we’ve created a list of the most common scams and included how to avoid them:
Rug Pull Schemes
What it is - Also known as pump-and-dump scams, rug pull schemes are when scammers hype up a crypto coin or other investment opportunity in an attempt to convince traders to invest in it. They do this through online forums and social media platforms, framing a particular coin or project as ‘the next big thing’.
Once a considerable amount of crypto investors buy the coin, the price will have inflated. At this point, the scammers sell their holdings, making a profit and then disappearing. Their victims will be left with investments in a coin that has little to no value.
How to avoid it - To avoid falling for a rug pull scheme, you should be cautious before investing in any crypto assets. As we’ve said, it’s important to do as much research as possible to ensure you fully understand what you’re buying. Additionally, you can easily dodge these scams by assuming that if something seems too good to be true, then it probably is.
Fake Crypto Exchanges
What it is - Scammers also aim to target traders through fake cryptocurrency exchanges. These exchanges can look legitimate and professional but, in fact, are either packed with malware or are there to steal sensitive information from users. Anyone who signs up for a fake exchange may also be pushed to pay a large deposit that is never returned to them.
How to avoid it - To ensure you don’t join a malicious exchange, you must always double-check the URL of any website you visit. Some scammers masquerade as well-known exchanges by directly copying key elements such as fonts, colour schemes, and content.
If you’re really worried about falling into a scammer’s trap by signing up for a fake crypto exchange, then you can choose to use a crypto brokerage-matching platform instead. These platforms connect users with brokers, so they don’t have to risk finding one alone. Joining a decent crypto platform can help you dodge fake crypto exchanges altogether and remain safe when trading.
What it is - Giveaway scams involve fraudsters posing as celebrities or influencers and promising victims a big prize, such as free cryptocurrency. Scammers will send private messages through social media platforms to random users claiming that they’ve won, even though they haven’t even entered any giveaways.
Once a victim replies, the scammer will state that in order to receive their prize, they will need to sign-up for a website or send across a small ‘processing’ fee. Any personal information, such as contact details, handed over by users will be taken by the scammers and either used for future scams or sold on the dark web. They will also take the processing fee and disappear, either blocking the user or deleting their account altogether.
How to avoid it - Avoiding this type of scam is pretty straightforward. For a start, you should always assume that any type of crypto giveaway is a scam. Even if the account sending you a message is verified, it could still be malicious. It’s best to delete any messages mentioning giveaways and block the user. Furthermore, you should never send crypto to anyone you don’t know.
4) Diversify Your Portfolio
Diversifying your crypto portfolio is another key rule to follow, regardless of if you’re trading cryptocurrency or other assets. A diversified portfolio can help reduce the impact of a digital asset that is performing poorly. If you only invest in a single coin, if that coin’s price plummets, then you’ll be left with significant losses. However, if you buy multiple coins, you can effectively offset these losses.
Additionally, diversifying your portfolio can help you hedge against market uncertainty. We’re all aware of how volatile crypto is and how this asset is no stranger to controversy and speculation. At any point, coins in specific industries can drastically drop in value. For your portfolio to remain stable in turbulent times, you must spread your investments across a multitude of cryptocurrency assets.
Here’s an example of a diversified crypto portfolio that includes a selection of assets with various prices, market caps, and use cases:
- Bitcoin (BTC) - 30%
- Ethereum (ETH) - 25%
- Solana (SOL) - 10%
- Tether (USDT) - 10%
- Cardano (ADA) - 5%
- Uniswap (UNI) - 5%
- Chainlink (LINK) - 5%
- Polygon (MATIC) - 5%
- Avalanche (AVAX) - 2.5%
- Polkadot (DOT) - 2.5%
You should also remember to regularly review your portfolio and rebalance it when needed. Over time, your risk tolerance might change, or you create new short and long-term goals for yourself. That’s why, even as an experienced crypto investor, clearly planning out your portfolio before making investment decisions is crucial.
5) Only Trade What You’re Willing To Lose
As traders, we like to focus on expanding our portfolios and searching for new trading opportunities. Of course, it’s understandable that traders want to focus on profitability. However, it’s common that many traders within the industry forget about risk management altogether.
Considering risk management is a vital investment strategy, regardless of which digital currencies you trade. Although it’s impossible to completely eliminate risk when trading, we can still take steps towards reducing it. One key element of this is learning to only trade what you’re prepared to lose.
Too often, traders end up taking out loans, borrowing from others, or dipping into their savings account to fund their trading activities. This can be disastrous since, as we already know, crypto and other assets are incredibly volatile. All it takes is for external factors, such as political or economic pressures, to impact the market, and you could lose the money you need to survive on.
Furthermore, risking money that you can’t avoid losing can lead to emotional turmoil. You’ll feel a greater level of pressure, which can affect your ability to make objective and informed trading decisions. So, before trading any money, you could consider your financial situation, assess your risk tolerance, and establish a budget you intend to stick to.
6) Keep Your Emotions in Check
Speaking of emotions, it’s very easy to get carried away when trading, especially if you’ve recently experienced notable gains or losses. However, if you allow your emotions to take control, then they may overshadow your logic and cloud your judgement. Due to this, you may neglect previous crypto investing strategies and begin acting impulsively.
For instance, FOMO (fear of missing out) is something that affects all traders at one point or another. When we say FOMO, we’re referring to a feeling you get when you believe you’re missing out on a big trading opportunity. You may notice that a particular coin is rising in price, and other traders are starting to profit from it. Understandably, you want to join in on these gains too. But, as tempting as it is to turn your attention towards these situations, you must try and manage your FOMO.
Here are some questions you should ask yourself when dealing with FOMO as a crypto trader:
- Does this trade align with my overall trading strategy and risk tolerance?
- Am I letting my emotions control my trading decisions?
- How will this crypto investment impact my portfolio?
- What is the worst-case scenario for this trade, and am I prepared to accept that risk?
- Would I still make this trade if I wasn’t aware of what other traders are doing?
- Am I only making this trade because I worry I’ll regret missing out?
- Am I being realistic about the potential outcomes of this trading decision?
- Is this trading opportunity distracting me from my long-term goals?
All in all, regardless of your trading style, you should always stay up-to-date with industry news, do your own research before making any decisions, and learn how to keep your emotions in check. Trading is an incredibly high-risk activity, and you must only trade what you’re prepared to lose. Furthermore, to mitigate this risk, you must diversify your portfolio, learn how to identify scams, and establish a well-thought-out crypto investing strategy.
If you keep these rules in mind when trading, you’ll open yourself up to a better chance of making the most of your trading journey. Good luck and stay safe!
Risk Disclosure: Trading in cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory, or political events. The laws that apply to crypto products (and how a particular crypto product is regulated) may change. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading in the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Kalkine Media cannot and does not represent or guarantee that any of the information/data available here is accurate, reliable, current, complete, or appropriate for your needs. Kalkine Media will not accept liability for any loss or damage as a result of your trading or your reliance on the information shared on this website.”