Cryptocurrency is now a traded instrument like any other currency. The price swings in these instruments can be an opportunity for savvy traders who know how to take advantage of price movements. However, there are pitfalls to avoid when trading cryptocurrency. In order to profit, traders would like to avoid these basic mistakes that can cost them boatloads of money.
1.Do not get greedy
It is an old adage in the marketplace that bulls and bears make money and pigs get slaughtered. No financial instrument can go on an upward trajectory forever, and cryptocurrency is no exception to that rule. If you did not have a selling point when cryptocurrencies reached their highs last year, you would have lost most of your profits when they retraced much of those gains. Whenever you enter into a trade, you should know your exit point and stick with it. Remember that you are a trader and not a mutual fund. Traders seek to profit off of moves, and movement is rarely linear. By leaving some money in it for the next trader, you can lock in profits and start planning your next trade and find your next entry point.
2. Do not get tied to your trade
Not every trade that is made is going to be a winner. Numerous fortunes have been lost by riding losing trades until the pain could no longer be taken or no more money could be lost. While there is something to be said for patience and courage, there is also something to be said for knowing when to cut a loss. Sometimes the best traders are those who have small losses. You should always go into a trade knowing what your pain point is and stick to it. When you get wedded to a position, you tend to get emotional about it and lose the ability to think rationally. Then you end up as an investor as opposed to a trader. Instead of holding a cryptocurrency that has a compelling reason for the trade, you simply end up holding onto hope.
3. Do not buy on weakness
Trading cryptocurrencies is not like shopping in a store. When you shop at a store, the rule of thumb is that the cheaper the price is, the better off you are. That is not necessarily the case when buying a cryptocurrency. You are not looking to buy low, but rather you are looking to purchase a momentum. Sometimes buying on the way down is like catching a falling knife. That never really ends well for the person doing the catching. It is usually better to buy once something has bottomed out and has started to head back in a positive direction. Then there is usually some sort of momentum behind the cryptocurrency. Remember that cryptocurrency will not usually head directly northward after falling. There are usually some bumps in the road before the direction proceeds in a more linear fashion.