“New to crypto trading? 8 rules you should know before you trade…”
Are You interested in trading cryptocurrencies but don’t have a clue where to begin? Maybe you saw some interesting news articles about Bitcoin reaching an all-time high of almost 4500$ in August 2017. Or maybe you heard from friends or colleagues they are making money trading bitcoins.
How do you even trade a bitcoin? Or even more important, where can you buy bitcoins or other coins? DinoTrader gives you all information and tools you need to become a cryptocurrency trader.
There are a lot of ways to trade cryptocurrencies. We will cover them all in the upcoming blog posts. But before you start trading you need to be mentally prepared. Your mind can be your biggest friend or enemy when trading. In this blog post, we will help you to prevent you from making the most common mistakes.
Rule 1: do your own research
One of the first and most important rules in trading: Always do your own research. There are a lot of websites, forums, social media accounts, etc. out there to manipulate your choices. Most beginners read about Bitcoin or altcoins reaching all-time highs and want a piece of the pie.
But should you even buy bitcoins when the price is at the highest point? The worst thing you can do is to buy bitcoins because you read something on a website or forum. You should exactly know what you are buying. Do you know what Bitcoin really is and how it functions? Do you know how the blockchain works?
Before you start trading you should do your own research. What exactly is a bitcoin? Or maybe you want to buy Ethereum. What exactly is Ethereum and why you want to buy it? Most people just want to make money. They don’t care what the underlying value is. And that may cost them a lot of money.
Action for you to take:
If you want to trade bitcoins you should know everything about bitcoins. That means every aspect. Bitcoin trading can be very technical. Especially if your computer skills are not that great. You can potentially lose all your money before even making a trade. Read “Bitcoin for beginners” to give yourself a head start.
Rule 2: Your emotions are the biggest enemy
One of the hardest things about trading is keeping your emotions out of the trade. How would you feel when you just invested 10.000$ but the investment dropped to 5.000$ in just a few days?
Most beginners and even professional traders make the mistake to buy or sell based on emotions. This is something you can learn but will take a lot of time. Some people are just too afraid of losing money and end up in a panic sells.
In cryptocurrency trading, markets can go up and down within minutes. Somewhere in July 2017, you could buy a bitcoin for 1800$. One month later you need to pay 4400$ for the same bitcoin. That’s how volatile cryptocurrency can be.
If you are afraid of losing money, then trading might give you some heart attacks along the way. Trade on what you see, not what you think.
Action for you to take:
Be aware of the fact that trading will test your emotions. You should make a trading plan before you even begin trading. How much money are you willing to lose? Can you take this risk? Always stick to your own plan.
Rule 3: never put all your money in one trade
It can be tempting to put all your money in one profitable trade. But there is always some risk involved. These risks can be technical like an exchange or wallet that malfunctions. Or you are so excited that you mistyped the amount of coins you want to buy. You should never put all your money in just one trade.
Rule 4: never follow the crowd
You should exactly do the opposite of everybody else. When everyone is buying bitcoins you should sell. When everybody is selling their bitcoins you should buy.
If some coin becomes very popular, everyone wants to buy. That means the price will go up quickly. But unless there is a good reason for the price to go up, you should never buy when everybody else is buying.
This rule corresponds to rule number one. Always do your own research. Is there a particular reason why the price goes up? If not, the price might go down even quicker.
That’s exactly what happened during the internet bubble in 2000 and the crisis in 2008. Stocks were overvalued. Everybody wanted to buy these stocks to make money. The result was two big corrections in the stock market. But if you never sold anything then you would have made more money in the long run. This is not always applicable for every coin you want to buy. It’s important to do your own research.
Rule 5: Learn to read order books and candle sticks
Without reading order books you will probably only lose money. Reading the order books correctly can improve your profitability a lot. But this also depends on the trading strategy you want to use.
If you have faith in some coin you can buy to hold. If you are planning to hold for a long time, let’s say a few years, then reading the order books is not important. But if you want to make money in the short-term with day trading then you should know everything about the order books.
Action for you to take:
Rule 6: You will lose money
One way or another, you will lose money. It may be a bad trade. Or some technical issues with your wallet or exchange. You should look at trading as a game of roulette. In the long run, the casino always wins. That does not mean they don’t lose. You need to be the casino.
There are many ways to trade cryptocurrency. This rule especially applies when you are day-trading. And this rule also corresponds with rule number two. Losing money is not a bad thing. You should learn from your mistakes. Nobody can ride a bike without falling the first time.
Rule 7: don’t be greedy
Take the profit when you can. Being greedy is one of the worst things in trading. This corresponds to rule number two. If you are in a good trade, take the profits while you can. Everybody wants to be a millionaire. If you are greedy, trades might go sideways and suddenly you want to panic sell because you are losing money.
Rule 8: keeping track of your record
If you do not keep a track record you will most likely lose money. It’s like going to the casino every week and once a year you win a big prize. But you forgot how much money you actually have to spend to win this big prize. Your emotions take over because you won money.
Earning 10.000$ when trading must be a good feeling right? But if you lost 15.000$ the months before then you lost $5.000 instead of winning 10.000$.
Always keep track of your record. Trading cryptocurrencies have a lot of hidden fees. You need to pay transactions fees when you want to transfer your coins to other wallets. You need to pay order fees when you place buy or sell orders on an exchange.
Trading between coins can be even a bigger challenge. Because trading cryptocurrencies is not about buying 1 Bitcoin and trading it for 2 Ethereum. But most of the time it’s buying 0.01867736 Bitcoin and trading it for 0.00089893 in some random other coins.
Action for you to take:
Use excel to keep track of every trade you make. Note the fees you need to pay. Note the transaction costs you need to make. Note every aspect of your trades. This is the only way to exactly know how much money you are making or losing.
Where do you start?
Now you know eight important rules most beginners don’t know about. Trading cryptocurrencies is not simply buying some coins and wait for the money pouring in. You can trade cryptocurrencies in a lot of different ways. Some rules only apply when you trade a certain way.
Have you already figured out how you want to trade? Do you want to buy to hold? Do you want to be a day trader? Do you want to make technical analysis of trading charts? Do you want to ride the buy and sell waves? Do you want to use helpful tools?
DinoTrader will help you find the trader you want to be. But not everybody will make money when trading. In fact, most traders lose money in the long run. If you decide to be a trader then you should take it seriously. We are here to help you!
We recommend to read the following blog posts:
- Reading candlestick charts for beginners
- Reading the order books for beginners
- Bitcoin soft and hard forks for beginners
- Cryptocurrency trading for beginners