In the YouTube video, “5 Cryptocurrency Lessons for New Traders & Investors,” altcoin entrepreneur and evangelist Chris Dunn outlines his five lessons for new traders. Arguing that the altcoin market is currently the most welcoming for new investors, Dunn offers advice on avoiding hype and temptation in order to maximize one’s investment and avoid the pitfalls of “investing by popularity.”
Commandment One: Plan Your Trades before Pulling the Trigger
The unprecedented growth of bitcoin has brought investors into the market with the sole aim of making a fortune quickly. Many of these investors are simply buying bitcoin, hoping to get lucky. Had these investors had the foresight to invest when bitcoin was at $200 a coin and not $2,000, they would likely be happier today.
Impatient investors, however, have ignored basic trading etiquette such as buying low, selling high, avoiding momentary spikes and dips, and so on in order to get in on the hype. These investors ended up buying high, wasting whatever advantage they could have had from following a proper investing strategy.
Dunn suggests doing your homework first before investing. Taking the time to look at the market’s history, trading trends, information about the health of the assets and the exchanges, and the historical entry and exit trading points can help to create a proper trading strategy that minimizes risk and maximizes profit.
Commandment Two: Stop Over-trading!
In the days before the sub-prime mortgage crisis that triggered the Great Recession, the market underwent several momentary upturns. These upturns were not thought, by those in the know, to be anything suggesting a rebound. As a chaotic, dynamic system, markets tend to have pricing upswings and downswings all the time. However, to someone over-studying the market, these swings can be misinterpreted to disastrous effect.
If you assume that a good trader must have a trading strategy in order to succeed, an over-trade is any trade that is done outside this strategy. Such trades could be in response to a sudden upturn in the market or an announcement that causes an unexpected sell-off of the altcoin. Chasing these changes can be destructive, as they can correct themselves as rapidly as they showed up in the first place.
“This is probably the biggest mistake new traders make. They are chasing every little move in a market, but the reality is they only need to make one or two big moves a year to make a career’s worth of profit.”
Over-trading bears the risk of drawing down an investor’s reserves in brokerage fees and in slippage, the difference in the expected price of a trade and the actual price. Limiting your trades is the best way to combat this.
Commandment Three: Don’t Pick Tops
Every altcoin has a pricing spike. It usually corresponds to receiving major press or hype or after undergoing some significant innovation, such as releasing new software or merging with another altcoin. The problem is that these spikes are unpredictable.
Attempting to time sells for when one thinks the asset will be selling at its highest is foolish. First, there is a chance that one can sell the altcoin short, missing out on the remainder of the trading trend. On the other hand, a mistimed sell can result in selling the altcoin while the price is in decline. It is better to just stick to a trading strategy and ignore the temptation to overtrade.
Commandment Four: Manage Trades with No Regrets
“Just as you can’t pick tops, you will never know when the market will rollover or will bounce. So, what you want to do is manage your trade in a way that – no matter what the market does, no matter if it crashes against you or keeps going crazy – you are going to be okay and you will not regret your decision.”
There is no way to predict how a market will react. While hindsight tends to be perfect, in the moment, you must be able to act in a way in which you will be okay if things go wrong. This means having defined sell limits, being willing to take money out of an altcoin, and managing your portfolio in a way where you will not go bust on a bad turn of the market. Self-discipline is needed to maintain this strategy.
Commandment Five: Don’t Chase Hype – Anticipate it
Mastery of your trading strategy means not reacting to the market, but understanding it. For example, a recent downturn in bitcoin from $1,200 to just over $1,000 had investors selling off their coins. However, a look at the trend would have told investors that the downturn was temporary and led toward a major bounce.
It is important that investors put their emotions aside when making investments. Buying high at the top of a hype spike can lead to major losses. It is best to maintain proper trading etiquette; hype should not be a reason for breaking with “buying low and selling high.”
Following these five tips will help you to be a better, more successful investor. Being prepared, taking emotion out of the equation, and remembering proper trading etiquette will not only reduce the risk in trading but also make it easier to earn a decent profit in the market. Trading in altcoin is not easy, but the danger in the market may be mitigated by taking common-sense precautions.
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