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Must-know tips for trading in a Cryptocurrency exchange

By Shirley Alan|6th Aug 2020
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As digital currencies get more attention from the media, its market continues to grow with each passing day. Traders need to keep a close eye on the movement of prices before deciding to invest.


Some of the tips for having a good trading experience in a Cryptocurrency exchange are 

  • Possess a motive while entering a trade - Traders must know their objectives before they proceed to trade. The competition in cryptocurrencies is very high. For every winner, there would be a corresponding loser. Big investors with huge stakes also invest in cryptocurrency. If ordinary traders are reckless in their strategies, they would start losing money. A detailed market analysis is needed ahead of pledging money to different assets. Since the value of digital assets keeps on fluctuating depending on the day or period, it is better to avoid investing in risky assets by staying off from trading. 


  • Utilize facilities such as Stop Loss -  Stop Loss is a tool which helps an investor to reduce his losses by buying or selling a security when it reaches a certain price. It also assists an investor in protecting their profits when there is a risk that the order may not be executed. For maximizing benefits from Stop Loss, traders will have to devise suitable exit strategies. 


  • Beware of FOMO -  FOMO refers to the Fear of Missing out. It occurs when traders witness massive profits being raked in by their competitors from overpriced coins. This peculiar situation tempts ordinary investors to buy digital assets at a price higher than it was bought by big investors. This ultimately results in excess supply, and prices start to fall, leading to heavy losses. 


  • Ensure efficient risk management -  In the cryptocurrency exchange, speculators are the ones who run in the direction of massive profits. Wise traders utilize their experience and gather small profits from regular trades to build their wealth. While diversification of assets is a must, avoid investing in securities that have less liquidity. Make use of tools such as Stop Loss and Take Profit to increase your gains. 


  • The interdependence between Bitcoins and Altcoins -  Depending upon the investment exposure, the prices of Altcoins such as Ethereum, Litecoin, and Ripple depend on the market price of Bitcoins. Since fiat currencies are undergoing depreciation in their value, there has been a higher demand from investors as well as institutions for Altcoins. The market conditions will look bleak if Bitcoin’s price keeps fluctuating. Hence traders must have targets of what they are going to achieve from their investments. It is better to curtail investment in a cryptocurrency exchange when there is a downturn in the market. 


  • Do not splurge your money when the prices are low - Amateur investors do not have adequate knowledge of the market. They tend to prefer one digital asset over the other because of the lower price. Investors must watch out for the market capitalization of an asset. If there is a higher market cap, it is more suitable to invest to withstand risks effectively. 


  • Think before investing in an ICO - With ICO (Initial Coin Offering) becoming the latest fad in cryptocurrency financing, investors must analyze whether their claims are real or not. While some ICO’s have had tremendous success raising millions of dollars and offering higher returns to investors when listed on exchanges, there have been plenty of scams too. Investors need to go through the Whitepaper to understand the legal implications, and other terms and conditions. They must also verify the background of the team members. It is better to clear all doubts before deciding to invest in an ICO. 


  • Understand the consequences to face before investing in Altcoins - Since Altcoins such as Ethereum, Monero and Dash tend to lose their value over a period, it is ideal not to hold it for a longer period. Invest in those coins that notch up high trading volumes consistently. Observe the patterns in price movements of coins to buy or sell them at the perfect time in a Cryptocurrency exchange. 


  • Indulge in diversification - To manage risks amidst the unpredictability, diversification in investment is needed. If the ratio between the value of Bitcoin and US Dollar crashes, all the other Altcoins also lose value instantly. With markets altering between bullish and bearish conditions frequently,  investors must wait and watch instead of deciding in haste. While Bitcoin has made millionaires out of nothing, it has also led to the loss of fortunes for many investors. The key to gain consistent returns lies in the smart spreading of risks. If the cryptocurrency market is highly volatile, investors can put their money in other traditional avenues such as real estate, stock market, and gold. 


Overall, investors must develop the habit of trading objectively by taking data and insights into consideration instead of making their decisions emotionally.  While making profits and ensuring sufficient liquidity in a Cryptocurrency exchange are important objectives, investors must take into account the risks involved and not compromise on their safety. 

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