As with all forms of professional trading –currency, stock and commodities- the key to successful trades lies in the ability to minimize risks while maximizing profits. The best traders with consistent track records are those who have learned how to do both to a great degree.
Cryptocurrency trading provides a unique opportunity for both seasoned and beginner traders to make a small fortune. Crypto traders are frequently able to make a lot of money from their trades.
But those who do, learn how to lower their risks so their trades are in their favor. Most new crypto traders are often willing to just jump in and start trading without doing their due diligence.
If you’re reading this, chances are that you are seriously considering doing your due diligence, and that’s a good thing. Smart investors and traders know that avoiding certain pitfalls is just as important as brilliantly executing trades. Both of these activities go hand in hand, and essentially help make you a better trader.
3 Tips On How To Minimize Crypto Trading Risks
To that end therefore, let’s explore some of the popular risks and pitfalls you need to minimize or avoid while trading cryptocurrencies.
Determine Entry And Exit Points Early
The first thing you need to do to lower your risks is to determine when you want to enter the market, and when you should leave. Predetermining these things before the execution of any trades is important and requires considerable discipline.
This is also the key to successful trading. As a trader, you want to buy low and sell high. The question then becomes at what prices? Without determining this earlier, you’re more than likely to make mistakes while trading.
So, if you want to trade ethereum tokens for example, you can decide on an entry price of $390-$400 per ETH, and an exit price range of $450-$470. This way, you can determine just how much you want to invest early on and what your profits margins would be after successfully trading.
Determining these prices might involve the study of buy and sell walls over a specific time frame. Then, using this information, you can decide your buy and sell prices. Of course, there are other factors to consider like news items, market sentiments and a few other factors.
If you’ll be using the buy and sell walls to get an idea of what your buy and sell prices should be, look for trends in buy and sell orders.
If there are a lot more buy orders (as evidenced from an abundance of green walls), then it might imply that there are more people willing to hold their cryptos than those willing to sell. This should also be a good time to buy.
You should also pay attention to the sell walls (usually red walls) as they can indicate market sentiment and the approach of a bearish trend. Just don’t decide the buy and sell price without consulting the current market prices.
For instance, if you decide that your entry point would be when 1ETH equals $200, you might have to wait a very long time as ethereum’s price probably isn’t going to drop that low in the foreseeable future. So, your buy and sell prices can’t be arbitrary or determined in a vacuum.
While genuine buy and sell walls can help you make profits, fake walls can cost you a lot of money. You should know how to spot and identify these walls too as they are often indicative of price manipulations through pump and dump schemes.
Just look for a lack of a price runway, a tall/vertical market movement and lowest sell and highest buy orders. These are designed to fool traders into jumping on, thinking they have a good deal, when in reality, they have no supporting market sentiment.
While using order books can get you decent trading results, traders typically get even better results using a combination of order books and technical analysis. It isn’t unusual for traders to often utilize support as entry points and resistance as exit points. It all depends on the traders experience knowledge and preferences.
Avoid Trading With All Your Capital
Trading with 100 percent of your capital is not a smart move. You should always keep a percentage to ensure solvency. Smart traders know and understand this. As a result, they usually have a predetermined percentage kept in holdings that they don’t touch.
This reserve will always keep them trading and ensure they don’t lose all their capital in the event of a huge market downturn. What we recommend is never move all your capital to your crypto exchange of choice.
Just move those you need to trade with, and leave the rest in your wallet. This way, if anything were to happen to the exchange, you wouldn’t lose your entire pot. More importantly, think diversification of your assets. From the allotted capital, spread your trades across multiple exchanges and possibly cryptos.
This helps lower your risk of losing everything in the event of a hack or data loss. The same goes for your crypto trades. Instead of just trading one crypto, pick 2-3 and spread your trades over them. This minimizes your risk and keeps your capital safe.
Pay Extra Attention To Your Computing Security
Now more than ever, hackers are becoming more innovative in their hacking quests. Apart from malware and keyloggers installed on your computing device, many are actively using phishing strategies to execute commands that will empty your wallets or provide access to your exchange accounts.
As a rule, don’t click on links in emails from unknown senders. Always ensure that your computer is secure by updating your antivirus, antispyware and antimalware tools. Use long, complex passwords for your exchanges.
Pay attention to your exchanges’ URLs. They must all start with https and have a green padlock beside them on the upper left corner of the URL bar.
The good news is, most exchanges are pretty secure and less vulnerable to attacks. Most of them have potent security measures in place, include anti-hacking teams dedicated to countering any hack attacks in realtime.