You can become a trader in the cryptocurrency market within a few minutes. You can also lose all investments as quickly. To prevent this from happening, we have compiled a list of five key advices for novice traders.
Watch the Bitcoin
Some 10 years ago, there was only one cryptocurrency in the market, the bitcoin. But over the past few years, thousands of new cryptocurrencies emerged in the world, which return on investment (ROI) now reaches tens of thousands of percent. They have got the name altcoins. Sometimes the altcoin’s price grows faster than that of the first cryptocurrency. This may give a novice trader an impression that investments in altcoins are more profitable. The problem is that choosing a gainful project among hundreds at the very start is a difficult task and even experienced traders not always can do it. Forecasts of the future development for many altcoins are extremely pessimistic. Thus, Barry Silbert, the founder and head of the Digital Currency Group and Grayscale Investments, is sure that most altcoins are useless, and their value will drop to zero. This does not necessarily mean that you cannot earn money playing with their changing value.
Bitcoin has earned a good reputation of the most reliable, decentralized and stable cryptocurrency for a short period of existence of the cryptocurrency market. It accounts for more than 69% of the total cryptocurrency market capitalization, and some analysts believe that this figure actually exceeds 90%. Bitcoin has a leading position in terms of trading volume, meaning that it has the necessary liquidity, and, if required, the trader will be able to quickly open and close a bitcoin trading position.
If you want to invest in cryptocurrencies, then it may be beneficialto store at least 50% of the investments in bitcoin, using it as a safe haven. Bitcoin may not go up in price as sharply as other cryptocurrencies, but it is less likely to collapse to zero as it happened to altcoins more than once.
Control Your Emotions
The advantage and the danger of the cryptocurrency market at the same time is a low entry threshold. Trader does not need to have a license, certain experience or capital. You can start bidding with as little as $50. But this also means that the cryptocurrency market is full of unprofessional amateurs who tend to panic, that is largely used by more experienced players by regularly dropping messages into the information field calling for bringing down the market or pushing it up.
FUD and FOMO are two concepts which exist outside of the cryptocurrency market, but these two are widely used in this area. FUD (Fear, Uncertainty and Doubt) is a tactic of psychological manipulation. It is widely used in marketing and propaganda and aimed both at creation of negative or positive mood. Using this concept, you can convince to sell or buy any kind of asset in the cryptocurrency market. For example, news about the imminent ban on mining in China appeared with enviable regularity and repeatedly led to a reversal of the cryptocurrency market to the red zone.
FOMO (Fear of Missing Out), or the syndrome of lost profit, is the fear of investors to miss an important event or a good chance to make money. Traders succumb to this fear and start buying or merging assets and disregarding common sense. For example, a lot of experienced investors were buying bitcoins for $20,000 at the end of 2017, having forgotten one of the golden rules of trading – “trees do not grow up to heaven”.
Self-discipline and control over emotions is the key to success for a crypto trader.
Keep an Eye on the Market and Learn from Mistakes
The usual methods of analysis do not always work in the cryptocurrency market as it does in the market of stocks, precious metals or currencies. Sometimes obviously positive news does not lead to a long-awaited growth, and dubious rumors in social networks bring down the market in a matter of hours. It is impossible to resist this market movement for traders who do not have years of experience and hundreds of millions of cryptocurrencies to manage. The only thing remains – feel the market movement and try to ride the wave. Do not try to go against the market.
“The market is a community, for a long time which even a group of people cannot command it, not just that alone. In other words, one who does not have the financial strength to lead the market in his own direction has only one thing left: to learn to keep up with him, constantly adapting to the situation, Mark Douglas, a famous American trader, writes in The Disciplined Trader. Do you want to learn how to predict the price movement? Then you do not need to pay attention to the reasons. It’s better to find out how the majority assesses the situation in terms of concerns”.
If you have already made some erroneous transactions, then you should use that experience to understand how to avoid the same mistake in the future. Trader has stayed in a losing trade, though he clearly saw a market reversal? Or he didn’t feel the market movement? Or started panicking? All these emotions should be carefully studied to understand what strategy and with which degree of risk to follow in the future.
Make a Wise Choice of a Cryptocurrency Exchange
What cryptocurrency exchange to register on? Every trader who starts working in the cryptocurrency market faces this question. Unfortunately, a trader, especially if he is a beginner not only in cryptocurrencies, but also in exchange trading in general, does not always have a clear understanding what indicators should be considered while choosing a trading platform.
Mr. Sergey Esipov, a co-founder of the UK cryptocurrency exchange Bitlish, gives an explicit list of those criteria.
Liquidity. What is the daily trading volume, the price volatility, spread size and market depth.
Trade inflation. Whether the exchange was noticed participating in an artificial inflation of the trading volume.
Instrumentation and listing. How extensive is a set of trading instruments at the exchange, and which cryptocurrencies are included in the listing and available for trading and in which pairs.
IT systems. What is the speed of data transfer and response receipt in the system, what protocols are used, how mature is the security system.
Existence of external and/or internal supervision of fraudulent trading operations. Does crypto exchange monitor possible fraudulent schemes, does it stop them (Irisium Market Surveillance, Nasdaq SMARTS and NICE Actimize are examples of such systems).
Deposits and withdrawals. In which currencies can user deposit and withdraw assets, does the crypto-exchange work with banks and payment systems, does it accept payments and makes payouts in fiat currencies.
Jurisdiction. Where the crypto-exchange operator is doing business, does it have applicable license(-s).
Legal and financial protection systems for clients. Does crypto exchange have KYC/AML systems, antifraud and insurance funds.
Investors, team and management. Who has launched the crypto-exchange, what are professional skills of these people, who financed the project development.
Opinions. What are users’ reviews on the crypto exchange, whether its trading platform experiences frequent problems with withdrawal of funds.
“While there are hundreds of trading platforms in the cryptocurrency market with a different set of services, there are just a few really worthy players with unique tools,” Mr. Esipov notes. “Bitlish, for example, is able to accept deposits in fiat money, and there is also a service for quotation glasses that flocks applications of many liquidity providers from various platforms, which allows you to make transactions and conduct arbitration at a more favorable rate.”
Mind the Safety
In 2018 hackers stole over $ 1 billion in cryptocurrencies from crypto exchanges. Trading platforms are constantly improving their security systems, but cyber-criminals are not far behind, they also make more and more sophisticated attacks, including SIM swapping, fishing, URL interception, clone sites. The user also partly bears responsibility for the security of his crypto assets. You must always check the address of the crypto exchange in the address bar, watch if the connection is secure, do not follow the links from emails from unknown senders and without first checking the sender’s address.
Special attention should be paid to storing passwords and keys. If cyber-criminals gain access to this information, they will easily and possibly imperceptibly transfer crypto assets to their wallets. A classical story happened to a BBC journalist Monty Munford. He told how he had lost £ 25,000 ($ 30,000). He chose MyEtherWallet wallet for storage. To make it easier to copy and paste the secret key when confirming the transaction, he saved it in Gmail drafts. Munford realized that he had made a mistake only when he saw that his wallet was empty. He made a typical novice mistake as he left the key in a car with an engine running.
Therefore, you should not store passwords for crypto services on-line, in the cloud, email or transfer them in social networks. When you, for any reason, need to transfer the password or part of it by an insecure channel, you should immediately change it. We’re not exaggerating – sometimes you may have just a few hours or a day before it will betoo late.
And don’t forget that cryptocurrencies are high-risk assets. You should invest only those funds which you are ready to lose. Remember that in this market you trade at your own peril and risk!