6 Useful Strategies for Staying Safe When Trading Cryptocurrency
Cryptocurrency trading can be very profitable and rewarding, but you can also lose a lot of money if you take unjustified risks. Of course, even if you are not, the market is unpredictable and you can always end up on the red side. If you want to reduce your risk that much, these six strategies show how to stay safe when trading cryptocurrency.
1. Don’t invest more than you can afford to lose
I think you’ve heard of this rule before, but it would never hurt to repeat it – don’t invest more than you can afford to lose. Crypto markets are volatile, and huge fluctuations in the price of the currency happen all the time. While it is highly unlikely that your coin(0) will end up at 0, it is quite possible that it will depreciate two, three times or more in the course of a day or two. Of course, it could go up in a week or so, but don’t bet your life on this. To sleep well, don’t invest more than your pocket money – at least not in the beginning when you’re new to demo trading.
2. Diversify your portfolio
If you are only trading a coin or two, you can lose a lot if those coins go down. If these (Crypto) coins are winnings, you can also get a lot, but don’t count on it. To stay on the safe side, always trade multiple currencies, not just one or two. There is no perfect number of coins to trade, but at least five or ten is a good bet. This way even if a coin or two goes down, your stack will still be higher if the other coins are doing decently.
3. Don’t commit to just one exchange
In order to spread the risk, in addition to trading in multiple coins, you must also plan several exchanges. Again, there is no perfect number, but if you divide your assets among at least three to five exchanges with maybe three to five coins on each exchange, it’s a good variety. In addition, in this way you can reduce the risk in the unlikely event that the exchange is hacked or disappears (along with your money) because if this happens, all your money will not be lost.
4. Avoid risky deals, even if they seem profitable
Greed is a major motivator, and when you see a coin with good divergences over the past day, week, or month, you instinctively want to bet. However, this is the least rational and most dangerous behavior. If there are significant divergences, or drastic spikes in the price of a coin, it could be due to a pump or dump attack on that coin or simply mere coincidence. As a result, you are likely to see the price of this currency drop in the coming hours or days, with the loss of your money. Always put your money next to coins with more direction – your profits may not be as high when trading risky coins, but your losses will not be either.
5. Dump losing coins quickly to minimize losses
Even the best and most experienced traders can’t always predict the market, and they end up on coins they don’t like. In this case, one of the strategies is to hold – that is, do not sell the coins now, but wait for the price to rise again. In many cases, you don’t have to wait for long – a few days or a week until the trend reverses, and the price is correct (again).
However, in many other cases, the price plunges for a long time. This not only means that you lost money on this trade, but that the rest of your money is locked, and you cannot use it anywhere else. In such cases, the best thing you can do is sell at a loss so that you can free up your money. Unfortunately, there is no recipe for when to wait and when to sell at a loss – you need to trust your gut feeling, but when you are a beginner, your gut feeling is not always wise.
6. Never lose your leverage over cryptocurrency trading
Finally, don’t let crypto trading rule your life! Don’t lose sleep (and sanity) on it, don’t spend fourteen hours a day in front of a computer, and get a life! Even if you make a lot of money as a cryptocurrency trader, it’s hardly worth your health and social life – just know where to draw the line.
Wrapping
I could go into more advanced tips on how to stay safe when trading cryptocurrencies, but since this is a beginner’s article, I’ll stop here. I’ve covered the basics and beyond, and I think these tips will be useful to anyone who is just starting out as a crypto trader or who is considering this option.