Cryptocurrency Trading Strategies: 17 Solid Rules To Follow

9 September 2018

cryptocurrency trading strategies

Featured image courtesy of Man With No Name.

It is no surprise that most people eventually lose some of their hard-earned money when they start trading. Lack of experience, being undisciplined and irrational decisions slowly but surely drain their trading accounts and finally lead to a capitulation.

However, your chance of being a successful trader are a lot higher if you follow a set of principles and develop a cryptocurrency trading strategy.

In this article, you’ll learn the most important rules for trading cryptocurrencies that will help you make consistent gains and preserve your capital.

Don’t FOMO

If you’re not familiar with FOMO, it means the fear of missing out.

Fomoing in on a trade is always a bad idea. It is tempting to justify a fomo trade considering the amount of influencers on Twitter, Reddit and wannabe experts who’ll lead you to making a bad decision because you don’t want to miss out.

The truth is, FOMO trading is based on your emotions and emotions are your biggest enemy when it comes to becoming profitable consistently.

No Position is a Position

An easy way to never FOMO on a trade again is to realise that not taking any position is a position in itself. You can stay flat for weeks and wait for the right set up and there is nothing wrong with that. Meanwhile the trader who’s eager to take the position over and over again without the right preparation will be collecting many losses which cumulate quickly.

Next time you feel like everyone and their mother is on a trade and you aren’t, remember that staying flat is perfectly fine and oftentimes the best thing you can do.

Don’t Trade Around News

One single piece of news can massively influence the price which is exactly the reason why you don’t want to trade when big news come out. There is plenty of manipulation going on and therefore, staying flat and waiting for the noise to settle down is what an experienced trader would do.

Can you make money trading the news quickly? Sure! But you can also get burnt because of the incredible manipulation that happens every now and then in the crypto market.

You’re a Prey Until You Close your position

One thing you need to always keep in mind is that unrealised profit is not a profit. As long as you have an open position in the market, you’re nothing but prey. Servers can go down, manipulation can occur, some FUD can come out.

As a retail trader, you don’t have control over those things so you’re just a tiny ship on the big ocean.

If you have a profitable trade open but you don’t close it, it can ALWAYS reverse and turn into a loss. Keep that mind every time you get too enthusiastic about unrealised profits. That way you won’t get over-excited and won’t let your emotions get the worse of you.

You’re Only Profitable If you Take Profits

Taking profits is something that many people forget about because of the HODL mentality. Whereas it can work if you’ve invested in undervalued cryptocurrencies and are happy to wait long-term, it can ruin you as a trader.

You know that guy whose lambo has a “HODL” license plate? Well guess what, they were only able to afford it by selling and taking profits. Actions always prove why words are nothing but wind.

Don’t Get Emotional

Becoming too emotional will not only ruin your chances with your high school crush but also your trading account. Emotions are your number one enemy in crypto. Period.

You want to detach yourself from emotions whether you’re losing or winning. Trading is all about calculated risk and reward, not about feeling exciting or fearful.

Panic selling or holding onto a profitable trade for too long because you’re overly enthusiastic are both signs that you’re too emotionally invested into trading.

Always Use a Stop Loss

There isn’t ever a good excuse to not use a stop loss when you’re trading. However, many traders still fall prey to the HODL mentality. Remember, you can HODL if you’re long-term investor, but if you’re trading, holding onto a bad trade for too long because you’ve not utilised a stop loss will increase your losses.

Don’t Overtrade

Trading can be addictive. When you have a successful trade, you start feeling good because your brain is releasing dopamine into your body. After all you’ve just become (a little or more) richer only thanks to your own skill and wit. It’s natural that you want more of this feeling. It can be even comparable to being high.

That’s when you suddenly get the urge to open another trade to make even more profit and get some more of the sweet, sweet dopamine. In reality, overtrading can lead to not only losing your freshly made profits but also to running out of capital. This point also goes back to detaching yourself from your emotions. Remember they can easily become your greatest enemy!

Whether you’ve made a good or a bad trade, remember to take a step back and chill. There is no need to rush into another position too quickly.

Some people will only take a few trades a year and they can be a lot more profitable than someone taking a few trades a week.

Take a Break After a Huge Win or Loss

If you’ve gained or lost a significant amount of money, it’s a good idea to take a break for a week or two. It comes back to the “don’t overtrade” rule and not trading under emotions.

Taking a break will allow you to calm down, whether after a win or a loss and look at the next trade from a much better perspective.

And if you feel like you might miss out on some good set ups when you take a break then guess what, you probably will. But there are limitless trades to be taken in the future so you don’t need to worry about it.

Don’t Revenge Trade

If you’ve lost a bit of money because some manipulation occurred, or you ended up making a wrong call, never revenge trade.

Take a deep breath and let go.

Revenge trading is basically emotional trading and we’ve already established that’s a recipe for making more losses.

Don’t Trade Under Influence

You might laugh that this is one of the principles but then again, there are people who will open positions when they come back home from a party. The reasons behind such a behaviour might be at least twofold: (1) the alcohol or other drugs make them feel more brave and confident about their trading skills and (2) they might be looking for a little more of the already discussed dopamine.

Regardless the reasons, trading while intoxicated is almost as bad as driving under influence (some may even argue it’s worse!). Your body isn’t at its best, your mind isn’t at the top of its game and certainly your trading skills are far worse than when you’re sober.

It’s tempting because you’ve got less control over yourself and you’re in a good mood but you’re likely to make some bad decisions. The best thing you can do is to close your laptop and go to sleep.

This is one of the worst habits you can develop and you can quickly see your funds shrinking if you keep pursuing it. That’s why it’s best to never start it in the first place.

On the other hand, there are times when you just don’t feel sleepy yet, you might check a thing or two on the internet, and oops, without even knowing you see yourself looking at those charts again.

There is actually a way to eat the cake and have the cake and this way is to:

Set up a Demo Trading Account

This useful trick will not only save you potentially tons and tons of money while trading under influence but it’s also one of the best way to sharpen your game and develop your skill.

Even if you consider yourself an advanced trader, there is always room for some experiments. Trying out a new indicator, messing around with different signals, making comparisons and drawing conclusions – an account with fake funds is the go-to method for testing new trading approaches.

It goes without saying that the same applies for beginner traders. You definitely want to be a 110% sure what you’re doing with your real money and playing around with some fake funds is the right course of action to gain that certainty.

You can set up such an account on various sites. Every one of them has a different design, tools and charts’ settings. There really isn’t anything standing in your way to go ahead and try at least a couple of them to find our your favourite one. You’ll also be able to apply your knowledge and experience gained on one site or an exchange to the other. For instance if you face a longer lag for a first time on a new trading platform it won’t result in a panic attack since probably you’d already be familiar with them.

Trade With a Trend

One thing you definitely don’t want to do is to piss against the wind. Going with the trend will help you enter profitable positions. If you’re in a bear market, opening short positions is a good idea.

On the other hand, if we’re going through a bull cycle, then you want to stick to longing.

Again, this doesn’t mean that you can’t be profitable shorting in a bull market, but it’s about minimising your risk and trading with a trend is one of the ways to do exactly that. Of course, at all times be on the lookout for any and all signs of a change in trend. We know that staying even the tiniest step in front of the masses is extremely hard to pull off but man, is it satisfactory once you actually do. Keep your eyes open!

Be Prepared For Manipulation

There is no question about manipulation in the crypto markets. It definitely occurs and the people who do manipulate it are so cheeky there are no longer trying to hide it. We won’t be naming anyone, but you should be aware that it’s part of the game.

If you’re not ready for manipulation, then trading cryptocurrencies is probably a bad idea in the first place.

Don’t Try to Trade Every PairIn order to be a profitable trader, you don’t need to trade every pair out there. Oftentimes, by picking one or two pares and devoting your full attention to them you can be a lot more successful.

There are so many different cryptocurrencies and pairs out there that it’s very tempting to try and trade as many of them as possible but that’s not the point. As long as you’re able to constantly buy low and sell high, you’ll only need one pair.

Pick Your Style

There are different styles of trading such as swing trading, day trading, scalp trading and position trading.

Fortunately, you don’t need to be proficient in all of them. You can very well pick one trading style and one pair and focus all your time and energy toward mastering that.

If you can master all of the trading styles then that’s absolutely brilliant, but don’t trade to do that if you’re a beginner.

Be Disciplined

As a trader, you want to be disciplined like a Navy SEAL. You develop a set of principles and you follow them no matter what. Once you develop your own crypto trading strategy, it should be like your Bible.

Again, if you find some spots, then it’s okay to adapt and change it a little bit, but you definitely don’t want to be trading different methods each time you take a new trade. Staying disciplined and loyal to your trading rules will make you a lot more successful.

Don’t Sacrifice Other Things

Trading can be extremely time consuming so it’s important not to sacrifice other things like time with your family, exercising, being in nature and so on only because you want to devote more time to trading. Whereas this might sound like a cliché advice from a self-improvement blog, it’s actually true and will improve your trading game significantly.

Remember, sitting in front of a screen for many hours is not what your body was designed for so be sure to maintain a balance.

Try incorporating these steps into your trading routine. You can do so step-by-step if you find some of them overwhelming at the beginning but remember that even following these tips broadly will make you more profitable in the long run. If you want to trade seriously, you’ve got to treat it seriously.

To put it in a nutshell: keep your head cool, don’t overdo it and remember that the world doesn’t end at crypto and its charts!

If trading is not your thing then be sure to check out our post on the crypto investment strategies. Also, if you’ve got something interesting to share, considering submitting a guest post or a press release.