Whether you’re looking into trading cryptocurrency, you’ve just starting out, or you’ve been doing it for a while, it’s always good to know the basics to maximize your chances of successfully earning profit from trading cryptos.

Some of these things may seem like common sense, but when you look at the reasons behind those who fail, they do so because they deny these simple truths.

Here are the five laws for trading cryptocurrency:

#1 – Hit the Books

You can never know too much. The most successful investors read and read often. It helps them understand what they’re trading.

If you’re going to be trading cryptocurrency, you need to know your coins. You need to ignore the hype on social media.

Find a reputable educator in the space that has experience if you chose to follow someone. You should realize that choosing the best investment takes work.

Know Your Coin – You need to research any coin you invest in. There is risk when trading and investing in all markets and crypto can be quite volatile. 

If you’re going to invest in altcoins, then it’s even more imperative that you do your research. Most projects have whitepapers that you can read to dive in deeper. If you can’t find it or if the whitepaper is incomplete, that’s a red flag.

Find out who they have on their development team and look at their roadmap. You’re looking for a viable product backed by a solid team. Ask yourself, “would society be interested in this?” before choosing to invest.

Beware of Scams – There are plenty of scammers and scams to be aware of when investing. These range from fake ICOs to pump and dumps. Knowing the signs will help keep you from losing your money. This also includes learning how to protect your investment with a secure wallet.

#2 – Only Invest What You Can Afford to Lose

If you walk away from a loss, it’s upsetting, but you get over it. If you lose money that you never had in the first place, that’s a much deeper hole to climb out of. Use only your “risk capital”, which is money you’ve set aside to trade with that won’t affect your life if you lose it.

Treat the money as already lost. This way when you’re buying and selling coins, you’re doing so with a much clearer head.

You risk clinging to emotions and hunches rather than holding to a clear, thought out plan. And following this type of trading will only lead to a loss.

#3 – Manage Profits and Loss

You need to know when to walk away. When you sell at a high, it’s an incredible feeling. The temptation to keep holding on, waiting for more substantial returns can make you stick it out longer than you planned on it.

When the market turns, this can wipe out any gains you could have had. Set a goal and stick with it.

The same is true for losses. Know when to walk away. Trading is a complicated dance. Some days you win, some days you lose.

The goal is to make sure your wins are larger than your losses. If you stick with this, you’ll win out over time. Many people will take a massive gain and then burn it because they think they will keep scoring the right bets.

One last note, remember that losing when trading cryptocurrency is part of the game. When you take a loss, walk away and leave your ego and emotions out of it. As long as you still have money, you can come back later with a different plan that may be successful. But not knowing when to leave can leave you broke.

#4 – Diversify Your Portfolio

Most people wouldn’t walk into a casino, go up to the roulette table, and use all of their spending money to make a single bet on black. Why do the same with trading cryptocurrency? Spread out your investment.

This gives you multiple chances for success. You don’t want to be spread out too thin, however, and end up with negligible returns. Instead, pick a handful of coins that you’ve researched and that you believe will provide a return that justifies the risk, then follow through on your plan.

Another point worth mentioning is that if you tied up your all your funds on a single coin, two things happen…

First, if that coin fails, you’re wiped out. You lose all your money.

Second, because you only have that one coin to focus on, you are susceptible to overtrading. This spastic buying and selling with every rise and fall in the market will burn you more often than it will bring you returns.

#5 – Trading 101 Still Applies

“Buy Low, Sell High.”

There it is. It may sound basic, but at the end of the day, investing in cryptos is still investing.

Yes, there are differences between trading cryptos and trading stocks. Stocks may have less risk and more security, but they lack the high rate of return from trading cryptos over the past few years.

People trade cryptos on the open spot market. The market reflects speculation. Speculation is susceptible to human nature.

Understanding how trading works to better predict the market will help secure higher returns on your investment. Going back to the first point, read up on investing. Understand how to analyze patterns. Understand how to make a plan. Understand how to capitalize on your strengths as an investor.

Do all this, and you will further your chances for success.

Only Guidelines

Cryptocurrencies are volatile markets. You should use caution when investing and make sure you invest what you can afford to lose. Remember that investing in a market is complex because it involves the most infinitely complex variable—human beings.

Fear and greed drive us. In the midst of chaotic trading and frustrating loss, we can make irrational decisions. Not everyone can be successful. For some to be, others must fail. But the reason many fail is that they refuse to accept truths they already know, pushing for gut hunches and chasing losses, acting irrationally, following hype they know will only lead to disaster.


About the Author

Daren is a cryptocurrency investor, miner, and blockchain developer. He researches the latest trends and technology in decentralized products and services.