7 cryptocurrency rules you must keep in mind before investing a single penny.
Did you know there are several ways of reaching poverty while investing in cryptocurrencies? However, there are plenty more ways of being a millionaire by keeping these 7 rules together. It is estimated that there are over 300 million crypto users worldwide and more than 18,000 businesses are already accepting cryptocurrency payments. With the current rise in the popularity of cryptocurrencies, plenty of people have dived in to make some fortune, and you being one too can outsmart them if you know these rules from the very beginning.
Research before Investing
Yes! Starting with the most basic yet the most important one. Wait a minute, someone with a good following on Twitter just tweeted that they own a 1000 XYZ coin, I should grab a handful too (Dumps 25% the following day). If you don’t want to bear losses like these, RESEARCH before investing!
1- Go through the Coins whitepaper
2- Checkout their website and social
3- How active is the team?
4- What utility does the coin hold?
And by just looking for answers to these questions you would have played your part in a coin’s fundamental analysis.
A term that beginners don’t understand but are the second most important after your research. You cannot just buy or sell a coin whenever you like. What tells you that the coin has reached a good low to make entries into it or when it has reached high enough for you to exit a trade and leave the remaining profit you were just about to make. There are plenty of videos available on YouTube which guide you over this rule. But all you have to do at the beginning of your crypto trading is to mark the support levels for your buying and resistance levels for selling on a graph like this.
The 3rd most important rule is to manage your risk. In the year 2018, a survey found that around 24.2% of those surveyed planned to manage the risk before executing the trade. What comes to help is a feature known as Stop-loss that is available on all exchanges. What does it do? It exits the trade for you at whatever price you have asked it to sell on. For example, if you are asleep and a coin starts to dump, now you won’t be able to save your money however the stop-loss option would do it for you. You can either set a 10% less than your buying price or you can subtract the ATR value from your buying price and that would save you from something like this.
“Do not put all your eggs in one basket”
Says the 5th richest man on this planet for a reason. Now you might be very careful with those eggs in that basket but the world does not run with your thinking. Pouring all of your capital into one place may give you extra returns but what if that turns into an extra loss? You won’t be able to suffer that loss. Instead, a better way could be to remember Rule 1 and after that diversify your capital into at least 4 different coins. This way even if a coin makes you a loss that would be a portion of your total capital while others would be making a profit for you.
You see the value of a random coin skyrocketing in seconds, you throw all of your money for a short time into it without giving it a second thought. What if the price you bought the coin at was the highest it had to reach and after you made a purchase it drops to the lowest? This can make you a lot but this can even take everything from you. Another way people gamble in cryptocurrencies is whenever a new coin gets listed on an exchange people get their buy orders ready to gain from the sudden price hikes but it all ends when others exit that trade dumping it whereas you amongst several others are left to suffer that loss.
Catching a Falling Knife
You wouldn’t do it in real life, then why in crypto trading? This term is used for a coin that is falling/dumping rapidly and has huge volatility. Never try to catch one, why? As you never know at what price it becomes stable again. Secondly, there would be an issue with such a coin that made it a falling knife, so until the issue is resolved or the coin is stable again don’t take any entries in it.
Fear of Missing Out
Keeping the fear of missing out is what makes you act before thinking. This varies from person to person and how you can control it. There will be times when you will see people making profits from a coin and you would want to take entry as soon as possible but here would be the best time to implement all of the above rules and stick to a strict plan of yours. You can either hold a fundamentally strong coin for a long period so that you don’t care about the current price fluctuations rather you focus on the long term gains or one other option would be to dollar-cost average, by investing the same amount of money every month without worrying about the market conditions.
In the end, it is your thinking and actions that would produce good results. Along with implementing these cryptocurrency rules, patience is necessary otherwise your fear would take over and make you lose. Also, remember trading is the art of keeping the promises you make to yourself and sticking to your plan.