7 Must-Follow Rules of Cryptocurrency Trading

Charlotte Miller

Updated on:

Cryptocurrency is slowly taking root in many countries around the world. When Bitcoin was first introduced more than a decade ago, not many people would have thought how much value it would have become today.

Despite the criticisms and negativity from those opposed to it, digital currencies have proved to be resilient. This has prompted a lot of people to invest and trade in different types of cryptocurrencies around the world.

But in order to succeed in cryptocurrency trading, there are certain rules that one must follow. Below are seven must-follow rules of cryptocurrency trading:

  1. Scale into the trade instead of putting in large sums of money at once

If you are just getting started with crypto trading, it is unwise to put a lot of money into one cryptocurrency. This is primarily because cryptocurrencies are highly volatile. This means you can lose all your investment in a twinkle of an eye.

For instance, rather than purchasing $2,000 worth of Bitcoins, start by a minimum of $300. If you see the value is moving upwards, add another $300 and keep watching.

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  1. Buy and sell extremes

When trading highly volatile financial products like cryptocurrencies, you should regularly take profits. For instance, if your gains are at the extreme, dispose of all or half but at the same time take some amount off the table. Try as much as possible to resist the temptation of being greedy when trading cryptocurrencies.

  1. Never purchase on a margin

Buying on a margin means borrowing money from your brokerage firm in order to purchase more crypto. This is also referred to as leverage and it is usually a double-edged sword. If you get it right, you can end up making significant profits but if you are unlucky, then the brokerage firm may demand from you more money than you initially invested.

  1. Trade small

During the first few trades, target small gains. There’s no doubt that there are some individuals who have made a lot of money by trading Bitcoin. But it is also a fact that there are those who have lost almost everything in a lottery.

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  1. Keep mental-stop-losses

It is always a good idea to have stop losses. But the problem is that crypto usually moves very fast. This makes even hard stop losses ineffective. The best option would be to use mental stops and properly adhere to them.

  1. Avoid holding on to losing positions

If you realize a trade is not going in an unexpected direction, then sell half or all of it. Don’t allow small losers to become much bigger.

  1. Have a trading plan

A trading plan is very important, especially if you are dealing with cryptocurrencies. A trading plan helps you to know exactly when to buy and when to sell. You will reap big if you follow a trading plan and obey all the rules.

Bottom line

Every type of investment has its own rules. For you to know how cryptocurrency is traded, you must follow all the rules involved surrounding digital currency trading. You can get more information from sites like Capital.com.