How to Apply Traditional Trading Strategies to the World of Crypto
With the rise of crypto, more investors and financial experts have added cryptocurrencies as one of many potential ventures for their portfolios. However, the crypto market is vastly different from the traditional stock market. Compared to the latter, crypto is still in its early stages, and it is difficult to determine what the industry may look like in the future. Moreover, the market is exceedingly volatile, which can easily confuse and intimidate new and uninformed users.
Fortunately, there are some tips and strategies that people can import from traditional stock trading and apply them to the crypto landscape. Thus, before people start buying coins, downloading wallets (like the Monero wallet), and signing up on exchanges, here are some pointers for traders to bear in mind when applying stock trading methods in crypto.
Keep It Simple
The world of crypto is highly complex. New forms of technology, complex vernacular, and the constant fluctuation of cryptocurrency values is the norm in the crypto market. However, while the market is relatively new, it does not mean that traders have to completely let go of tried-and-tested trading methods. In fact, many successful traders in crypto recommend using the same tips from dealing in the stock market.
Sensible tips such as never investing more than you are willing to lose, making sure that your finances are in order before trading, developing a risk management plan, looking for a trusted financial advisor with whom you can ascertain your trading strategy, and never putting all your eggs in one basket are all tried and tested methods that many traders and investors have owed their success to.
Yes, it is that straightforward. While a person can invest in the latest hardware to help them trade and mine in crypto, the general rules that govern trading strategies are, for the most part, quite similar.
The main difference is that trading in crypto is significantly riskier than that of traditional trading. Remember that crypto is still a relatively new field, and, unlike the stock market, it does not have the extensive track record to show that it will stick around for a long time. For this reason, traders have to be careful with their investments and create a strategy that suits their trading style and financial goals.
In short, keep the trading mindset and approach simple, but proceed with lots of caution.
Risk Management Is Always Key
Risk management is an integral part for any kind of venture, trading or otherwise. However, it becomes significantly more important when one trades in a market as volatile as crypto. To help new traders and investors, financial advisors have a couple of recommendations in applying risk management to crypto trading.
- Do not invest more than five percent of your portfolio in cryptocurrency. To repeat, crypto is a highly speculative market. Putting too much money in a market that is not yet stable can incur you significant losses, especially if you do not understand it that well.
- Diversify your portfolio. If you wish to invest in crypto, financial advisors often recommend buying Bitcoin. However, you have to add altcoins as well. This method ensures that your crypto portfolio does not rely on Bitcoin alone, and you can potentially gain more from adding altcoins.
- Plan a strategy around your risk tolerance. If your risk tolerance is low, opt for well-known cryptocurrencies with an active developing community. These are coins that are less susceptible to losing value over time. On the other hand, if your risk tolerance is high, look for new coins, ICOs (initial coin offering), and whitepapers that show a lot of promise. If you buy them early, you might be able to reap explosive returns in the future.
Have a Rule-Based Trading Strategy
Trading in the crypto market can feel like an emotional rollercoaster. Prices are constantly changing, and it can encourage or deter traders, depending on their risk tolerance. Thus, it is crucial to have a couple of rules and predetermined courses of action laid out beforehand before one decides to invest in a digital coin.
These rules differ depending on one’s trading approach. To elaborate, many crypto experts recommend the buy-and-forget method. It essentially means that after buying coins, the trader should hold them for a long period until the coin’s value has significantly increased. Traders who practice this, as a rule, may place their coins in a cold wallet first to avoid spending it or trading it away.
However, this method is not applicable to all digital coins. After all, not all cryptocurrencies increase in value over time (which is why it is wise to have backups). In this case, some people prefer to engage in day trading.
Day traders can employ a variety of methods, including technical analysis, bot trading, and scalping to churn a profit. The downside is that day traders have to keep their eyes focused on the 24/7 active market, which may work for short-term trading but is not efficiently sustainable in the long run. Thus, as a guide, day traders may limit the time they check the numbers, determine entry and exit points beforehand, or place limits so as not to be swayed by hype.
Overall, while trading in crypto and the stock market is very different, the techniques and methods that traders can use are still similar. It all boils down to executing these methods in a way that is effective in said platform. In this manner, traders–experienced and new–will have the tools they need to navigate the chaotic market of crypto with confidence.
