This guide is designed to help you avoid letting your emotions dictate your trades.
Buying and trading cryptocurrencies can be an emotional experience. It’s fast-paced and there are lots of different kinds of trades and purchases to make. Some people try to make money off the volatility of cryptocurrency prices through short-term day trading. Others are looking to hold long-term investments and hope the cryptocurrencies they buy will be a store of value.
All this makes buying and trading cryptocurrencies fun and potentially profitable. But it can also be charged with FOMO and FUD, which creates a risk of making decisions based on emotion rather than facts. To mitigate risk and avoid losing funds in the cryptocurrency market it’s crucial to keep emotions in check. The following guide is designed to help you avoid letting your emotions dictate your trades.
1. Make a plan
The most important thing before starting to trade is to have a clear idea of what your goal is when investing in cryptocurrencies. Before buying any cryptocurrency ask yourself these questions:
- How does buying crypto fit with your finances in general? Do you have other savings? If not, is crypto the best way to start investing? Would a safe vehicle make more sense to start?
- Can you afford to lose the money your thinking of using to buy crypto?
- Do you know about the risks and the volatility of cryptocurrency markets?
- How will you use your cryptocurrencies: buy and hold, or trade?
2. Do Your Research
It’s critical to do background research into the cryptocurrencies you might buy and their underlying technology. Be sure to read the project’s whitepaper. Look for cryptocurrencies backed by good technology and an active community. Though these two things are no guarantee of success, they will help you better understand what you’re buying.
3. Choose the Right Trading Exchange
Choosing the right platform is about figuring out which one will help you reach your goals based on your plan. Some of them have dozens and dozens of coins available for purchase and trade, while others list only a few. Some allow you to cash out your cryptocurrencies into fiat currency while others do not. Some allow you to purchase cryptocurrencies with fiat while others do not. Finding out which is best for you is essential. Here are some factors to consider:
Location: Using an exchange in your country helps with meeting legal requirements. It’s also easier to make deposits or withdrawals in your local fiat currency using your bank.
Coins and trading pairs available: Take a look at the exchange you want to use. What coins are available? What trading pairs? Can you buy cryptocurrencies with a fiat currency deposit or only with another cryptocurrency like Bitcoin? If you are looking for a long-term investment, an exchange with basic pairings will best. If you are looking to speculate on the market with day trading, on the other hand, you may need an exchange with advanced trading features.
Security: Platform security is critical. What kind of login procedure does the site have? The stricter it is, the better. Make sure the platform does everything possible to protect your funds from hacks. Check online for news associated with the platform and any reported risks. Another part of security is access to the exchange’s support team, which helps you get in touch if anything does go wrong or you need help.
4. Know your limits
You have to know how much you can spend and stay within that limit. How much you want to spend depends on your plan (see point 1 above). Investing in cryptocurrencies carries significant risk so you should only spend what you can afford to lose. Once you set your limit, stick to it. Do not decide to spend more on a whim or because of FOMO. This can lead to disaster.
5. Take advantage of limit orders
Limit orders can protect you from losses if cryptocurrency prices drop quickly. A limit order lets you set the lowest limit to which you will allow your cryptocurrency price to fall to before selling. Limit orders also help lock in gains.
For example, you buy a coin at 20 dollars per coin. If you expect the value to rise quickly you could set a limit order at $19.99. If the price falls dramatically, the platform will automatically sell your coins at $19.99. If the value of the coin rises to 25 dollars per coin, you can change the limit order to $24. Most exchanges will have a limit order system. Before you start to buy cryptocurrencies, test out the limit order system. It’s not a perfect science but limit orders help to limit losses and secure gains.
6. Don’t obsess over market charts
Right now, it’s the nature of the cryptocurrency sector for prices fluctuate dramatically. This is part of what is appealing about trading crypto. Prices can change in seconds, which creates profit opportunities. At the same time, the volatility can be an emotional rollercoaster. Watching market charts can cause your blood pressure to rise and trigger emotional responses, leading either to panicked selling or to buying high as a result of FOMO. While market charts are valuable, I speak from experience in saying that staring at them 24hours a day is not the best way to keep emotions under control when buying cryptocurrencies.
Buying and trading cryptocurrency can be exciting and potentially profitable. But it also comes with risk and high emotions. The points laid out above can help you keep a level head.
Subscribe to my channels Medium and Twitter if you like my articles and want to learn about blockchain and cryptocurrency projects.
If you have any questions about this article, please comment in the section below. Thank you!
6 Ways to Keep Your Emotions Under Control When Trading Cryptocurrencies was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.