2017 was the biggest year for the crypto-craze. Before 2017, cryptocurrencies were known only to a small community of people – mostly into finance or tech – the FinTech industry. However, once the prices started to rise and Bitcoin price hit $10,000, it became a matter of international discussion. Front page stories, prime-time slots and the homepage of your favourite social media – cryptocurrencies were dominating media. This led to many new and novice investors investing in cryptocurrencies for the first time.
While investing in cryptocurrencies seems to be a very lucrative idea initially, when you look a the long-term picture, it has many risks of its own. Cryptocurrencies tend to offer huge, unprecedented profits, the losses are equally huge. Cryptocurrency investments should not be made on an instinct as they can result in some severe financial damages if not done correctly.
While the crypto-economy appears very different from the regular economy, the rules of trading are quite similar for both of them. Let us take a closer look at some of the best tips which will ensure that you are able to trade cryptocurrencies safely.
Best Tips To Trade Cryptocurrencies Safely
1. Research about the currency before you invest in it
Before you buy a cryptocurrency – you need to research into it. What does the currency stand for, who are the people who have developed the currency, what real-world problem does this currency solve, how long has the currency been around, etc. It would also be advised to look up the social media handles of the currency you are about to invest in.
You need to look up the whitepaper of the cryptocurrency that you are going to buy. A whitepaper is a document which contains all the technical, managerial and marketing details of the currency – it is basically how the creators envision the currency to function. It contains of a road-map for the future as well. It is essential to read the whitepaper before investing in a new currency.
Researching a cryptocurrency also involves looking up some historic details – analyzing the graphs of a currency’s year-on-year performance can give you a hint on when the currency usually tends to lose or gain price. Moreover, you can also check out how closely is the currency linked to Bitcoin prices and trade accordingly in the future.
2. Understanding the ‘right time to buy’
Timing is everything in cryptocurrencies. Investing in the right currency at the right time can give you massive returns. One such example is that of Ripple, which was dormant for most of the year but suddenly boomed by 36,000% over the last couple of months. One of the most frequently asked questions in the world of cryptocurrencies is – ‘is this the right time to buy’.
There are two types of ‘good buying decisions’ that you can take:
- Buying the dips: There’s a set of people who believe that cryptocurrency markets will always bounce back. Hence, they tend to buy during the dips, i.e., buy when the price drops. If the price at the moment is $10,000 – and it drops to $8,000 – they’d buy it at $8,000, hoping the prices to bounce back to $10,000 and make a profit of $2,000 in the process. If the price falls even lower, they’d keep buying as long as funds allow them to – as these optimistic investors believe that the markets will recover eventually.
- Buying when the price rises: There’s another set of people who do not believe in the aforementioned theory of buying during the dips. They hold during the dips and wait for the prices to begin rising again. Once they notice that the prices are rising for a significant time, they invest in the currency and make a short-term profit on this positive momentum.
Basically, there is no fool-proof way of ensuring that every purchase will make a profit. However, these are the two general practices which many traders follow.
3. Setting Stop Losses and Targets
This is something which is quite similar to regular trading – as you’d do it in the stock markets. Targets and Stop Losses are critical. Every time you invest in a cryptocurrency, you need to consider three things: the current price of the currency, a desired profit, the maximum extent of loss you are willing to suffer.
These targets and stop-losses are supposed to be adjusted periodically depending on the movement of the markets. Moreover, most cryptocurrency exchanges and trading platforms also allow you to automate this process – which ensures that you trade safely and your investments do not lead to a loss.
4. Follow the news
For those investing in cryptocurrencies, it is critical for them to follow and stay up to date with cryptocurrency updates from across the world. Cryptocurrency markets are largely dominated by sentiments. A news of a nation banning cryptocurrencies could have a global impact as it could invoke a global FUD – Fear, Uncertainty and Doubt. Staying updated with all the latest news updates could give you an idea if the markets are going to go through a dip. For instance, news updates such as China banning crypto-exchanges or rumors of South Korea imposing a similar ban resulted in the markets crashing.
5. Do not invest more than you can afford to lose
The final bit of advice is rather simple. Do not invest more than what you can afford to lose. Basically, all the investment in cryptocurrency should be made from a pool of money that you have lying around and will not need for your day-to-day life. This should ideally be the kind of money, losing all of which will not affect your life. There have been cases where people have sold their cars or mortgaged their home to invest in cryptocurrencies – which resulted in massive losses. It is critical to understand that all investments in the cryptocurrency markets are subjected to major risk given how volatile the markets are!
To conclude, there can never be a way to ascertain for sure if you have invested in the right currency and at the right time. There are certain sites like CryptoGround where you can get the latest knowledge about it and keep yourself updated of the market trends. However, if you follow the aforementioned advice – there is a strong chance that you can make a decent profit out of your investments – or at least ensures that you do not end up making a loss, no matter how bad the market scenario may be at the moment.
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