A cryptocurrency trader is one who profits from the short-term movements in the market price of altcoins, cryptocurrencies, and value tokens. Of course, the aim is to purchase these assets when the price is low and then sell them when the price goes up. This form of trading can be extremely lucrative and you can find stories of many people who made fortunes doing it. However, you have to understand that there are certain things that you need to be aware of in order to become a successful crypto trader.
Yes, there is no doubt that there have been many success stories, but there have also been many more failures that you would rather avoid. So, what are the basics you should know? Find out below:
The relationship between risk and reward
Every successful crypto trader is one who has a clear understanding of the relationship between risk and reward. The purpose of risk management is to measure volatility and the chances of having a negative outcome from a trade. Nonetheless, if you want to be successful, you cannot run away from risk because there is a positive correlation between risk and reward. The greater risks you take, the greater the reward can be if the trade goes in your favor.
Technical analysis
In order to predict and identify trends and patterns in the changes in the value of a cryptocurrency, every crypto trader has to use technical analysis. It can help you in finding key resistance and support levels. This information can help you determine the ideal time for entering and exiting a trade. Trends indicate the general direction of a crypto chart, while uptrends refer to a series of lower lows i.e. support levels, and higher highs i.e. resistance levels. A sophisticated technical analysis will comprise of Bollinger bands, moving averages, and Fibonacci retracements.
News and community sentiment
Crypto traders need to keep track of news events and community sentiments because this information can have a big impact on the price of cryptocurrencies. Rumors and news can have a powerful impact on the market and can often be responsible for creating lucrative trading opportunities. Successful crypto traders are those who make use of the power of information by keeping track of all industry news and staying active in the crypto community. Keep your ear to the ground and you will not miss out on anything that can affect your decisions.
Be familiar with order types
There are a variety of tools provided by cryptocurrency exchanges that can be used for preventing mistakes and for keeping losing trades from going out of control. These include limit orders and stop losses. A crypto trader has to have a clear understanding of the different order types and risk mitigation techniques. Limit orders come in handy for specifying the maximum price you are ready to pay for a cryptocurrency.
This technique ensures that you will not have to pay more than expected if the price goes up, while your order is being filled. On the other hand, stop losses will automatically sell your cryptocurrency if its price falls to a specific level. The goal here is to prevent you from losing more money than you were expecting.
Self-control
It is essential for crypto trader to understand their own emotions, primarily greed and fear, because they can have an important role to play in your decisions. Not keeping their emotions in check is one of the biggest reasons why many people are unable to make it big in the crypto space. In such a volatile market, it can be difficult, but being able to exercise self-control can make a massive difference in your performance. Emotional control distinguishes successful crypto traders from the rest.
Fear and greed are extremely powerful emotions and they have the capability of clouding a crypto trader’s judgment, which may push you into making the wrong decisions. If you want to be a successful trader, you have to learn how to control your emotions and stick to your trading strategy, no matter what other people are telling you, or doing.
As long as you stick to these basics, you will develop a foundation of success as a trader in the crypto market.
