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2 May 2018
Successful trading in the cryptocurrency markets supposes risk management and understanding the industry specifics. Cryptocurrencies may be a good source of unexpected and fabulous gains, and may be the reason for despair, disappointment and money loss. Before starting to trade, investors need to understand the following fundamental rules and factors.
Cryptocurrency is mostly not perceived as a currency at all, as in general holders of crypto coins don’t seem to be spending them for purchases or paying the bills or services. There are stores and companies accepting Bitcoin and other cryptocurrencies for some goods, buying homes and booking the airtickets. Still, as a rule, cryptocurrency is viewed as a commodity for market speculations to earn extra money on the price changes.
The value of cryptocurrencies is based on their potential price movement to higher levels and as such it is associated with the market price volatility. For a great number of cryptocurrency market participants this is an opportunity to make investments and earn profit.
According to experts, Bitcoin and other cryptocurrencies will always remain an unknown commodity without strict measuring instruments to assess them and make a forecast. There are no fundamental properties, which could be taken into account for an analysis and reliable prediction for the cryptocurrency behavior.
Spending extra money
Specialists in exchange trading recommend starting investors to spend only some extra money that could be lost without substantial damage to the household budget, because once the fiat currency is given in exchange of some tokens or cryptocurrency coins, it should be viewed as lost forever. The outcome depends on many factors including cyberattacks, system failures and unexpected ban imposed by a governmental agency. Making allowance for such events, beginner investors are advised to think out wiser approaches and spend only those funds they can afford to lose.
Investors are recommended to keep to the stop-loss strategy when trading cryptocurrencies, establishing clear targets, when they will quit the market and take out the profit. Trading specialists strongly advise to keep out of feeling too much loyalty or favor to a certain cryptocurrency. Conventional stock exchange markets feature daily movements valued at 2-3%, while cryptocurrency markets may see an 80% movement in a matter of several hours.
It is practical to maintain a portfolio of cryptocurrency investments diversified, as the prices for various cryptocurrencies may move with different dynamics. Some altcoins may grow in price increasing as much as 60 thousand times, while Bitcoin and other major cryptocurrencies may grow only 30 times. It means that traders betting only on Bitcoin may lose an opportunity to make more profit on other market positions.
Avarice is a bad strategy
It is natural for people to wish more when their actions prove successful: as the price for a cryptocurrency starts growing, an investor may feel excitement and money-grubbing growing inside. Experts recommend investors to take out their profit once they see the price increase by 30%, despite the final targets set initially at 40% and higher. Waiting too long may result in losses.
Rely on outsight
While it is a good habit to learn more from experienced investors and specialists, the final outcome is ultimately a result of our own choice. There cases, when some investors would recommend doing something just out of their own interest, bringing unaware beginners to wrong decisions. It should be remembered that the cryptocurrency market is highly volatile and speculative, and, hence, investors need to make their own research and analysis.
Fear of missing out
Fear of missing out or FOMO is actually a wrong companion, as on the heels of frenzy and hype artificially created around big cryptocurrencies, investors may feel that they miss something compared to others who earn money on higher prices. Investors are advised to stay calm and keep in mind that the sharp surge in the price is always temporary and the cryptocurrency will finally settle down. Thus, it is better to wait for some time, when the prices become balanced and enter the market at that time, instead of jumping into a train at a full speed, buying out coins at high prices.
Exciting articles several times a month