Buying and selling cryptocurrency is one of the more recent financial instruments people are using to diversify their investments, and there is very little stopping you from doing the same. But before investing in cryptocurrency, here are some important guidelines you should make every effort to follow.
Do your research and stay up-to-date
Before you begin buying and selling cryptocurrency, it is of utmost importance to first conduct adequate research on every available aspect of it. This will play a role in finding a reliable cryptocurrency exchange, deciding how much of your assets you want to be converted, choosing which forms of cryptocurrency you want to invest or trade in, and many other such activities.
Cryptocurrency values are very dependent on speculations, scandals, and current views of the general public. This means that it is entirely probable that the social media account of a person prominent in the industry could potentially lead to a drastic effect in a certain cryptocurrency’s value tomorrow. Another important determinant is the actions of government and other regulatory bodies. While cryptocurrencies can be seen as a system that purports separation from these entities, it still operates within their jurisdictions. As governments around the world try new ways to regulate various cryptocurrencies you will see related effects in the cryptocurrency markets.
Understand the risks and plan appropriately
No one wants to hear of a loss when they are just beginning their journey of investing in cryptocurrency, but the possibility must be mentioned and understood. Some cryptocurrencies can be volatile, excluding stable coins, but therein also lies an opportunity if you can understand the trends and take quick action.
Create a target and stop-loss level for your trading
This is an extension of the previous point and is a way to ensure you are appropriately prepared during each trade. Stop-Loss is the lowest price you are willing to sell at. It is a setting that represents the maximum amount of loss you are willing to incur and is put in place to prevent your earnings from dipping below acceptable levels. On the other hand, your target level is the target price at which you want to sell. This represents the profit you are aiming to make on a particular trade. Both of these should be set with proper consideration and proper research.
Diversify your digital assets
Trading in cryptocurrency will not always be easy. To succeed, you will have to implement certain tactics and fail-safes to protect yourself. This includes the diversification of your digital assets. This involves possessing multiple forms of cryptocurrency simultaneously and never committing the entirety of your assets in any one trade. The reason for this is simple, profit and losses are equally magnified when investing in one cryptocurrency.
Resist the urge to overcapitalise on projected growths
When a particular cryptocurrency seems on a definite upward trend, many people are tempted to leave their investment for as long as possible to attain the maximum possible profit. This is rarely a good idea, as it might ultimately cost them a significant portion of their earnings. In this case, you don’t have to take everything out, but removing a measure of it to maintain profit is a reasonable idea. You might not make as much profit if the upward trend continues, but you would have definitely saved yourself from a loss. This risk-averse tactic is the best for beginners.
Understand FOMO (Fear of Missing Out) and learn how to manage it
Numerous users, possibly every single one, will have encountered this situation at some point in their dealings with cryptocurrency. One day there is a sudden spike in the value of a cryptocurrency. All related forums, media outlets, and social network pages are going out of their minds and yelling for everyone to BUY BUY BUY! Some unlucky users arrive in time to see this miraculous spike while it’s close to its peak, unable to resist the possibility that this upward trend will go on for some time, they buy. Suddenly, the value dips, everyone else starts selling and the poor buyers are left with a currency that is fast losing value and represents a definite loss. This is a classic case of FOMO, something that many new users will doubtlessly encounter but will need to manage in order to survive.
Bitcoin should be your standard
Bitcoin is the undisputable leader in the cryptocurrency world at the moment. This means that a majority of users, find themselves trading based on the performance of bitcoins. A rise in the value of bitcoins will likely see people buying altcoins, while a drop or stagnation in bitcoin’s value will lead to the opposite. This might change in the future but right now it is the standard to which all others are measured and traded.