“Yeah Albert, we know how to trade. Give us the good stuff already.”
Patience ladies and gentlemen, patience. It is precisely this kind of impulsive behavior that will cost you your money.
Use Limit Orders
When you buy or sell via an exchange, which is much more preferred than trading through a broker if you want to save money on fees, use limit orders vs market orders.
A market order attempts to sell or buy at the current market price (buys and sells available limit orders that sit on the books). Therefore, significant slippage could occur, especially in very volatile times. This means that you can either get a lower price with a sell market order or a higher price with a buy market order. As a rule of thumb, you will also pay a fee (i.e. Coinbase charges a 1.4% fee).
A limit order is not subjected to slippage and you may even find limit orders with lower fees (usually around 0.3%) than market orders. The basic concept here is that someone places a market order on the order book, in hopes that it will be filled by another person’s buy or sell market order. When the market price reaches that price, the limit order will fill (meaning sell or buy) the order if there is a seller or buyer.
Look at Price Trends
The worse time to buy is right after a breakout, when the coin is at a new high. It is the time when everyone is acting with frenzy. Yes, the idea is to buy low and sell high. However, if the price is at its highest point in the last 24 hours or so, be very careful as there is increased risk you will end up losing your money. And, if you do buy high and missed the opportunity to sell high (yet refuse to cash out or sell low), remember that holding on to the cryptocurrency through a correction is the best way to deal with it.
To understand the trends everyone else is reacting to and analysing, it might be good to be aware of the BTC (Bitcoin) charts, considering that bitcoin is the current leading digital coin of the crypto economy. For example, most of the times you will need to owe bitcoins or ethers to buy altcoins. Refrain from valuing things in dollars, which is what most people new to crypto (and some seasoned cash traders) tend to do. So, try to have the bitcoin prices of altcoins on your radar to be able to check how the altcoin of your choice performs against Bitcoin at any given time.
Note, though, that it is not rare to see bitcoin go down while altcoins enjoy an increase in their price. This is because almost everyone owing Bitcoin usually has altcoins too. So, when Bitcoin goes down, they move out of it and into alts. For that reason, it is best to diversify and have some of your funds in all the coins you trade. That way, you will be able to catch a giant price spike in a short amount of time or other odd event early on, and also avoid some of the urge to jump out of a coin just before it goes on a run, and into one coin late into its run.
Use the Order Book Wisely
All exchanges have order books that can give you a good sense of what kind of orders are on the books. If you want to buy and are waiting for the price to drop, check out other traders’ buy orders. Likewise, if you want to sell and see a lot of sell orders at a particular price, aim to sell under the price. Just beware of large orders that are not meant to fill – meaning, artificial sell and buy walls (you will find them at resistance and support levels).
Success Recipe: Have some coins to hold, some money put aside for a dip, some coins to trade weekly or daily, and some low-ball and high-ball orders set. No matter what comes your way, you will always stand to benefit.
Learn to Manage Your Buy-in Size
To minimise the risk you take on every bet you place, make sure that bet is the smallest possible compared to your total investable funds. As a rule of thumb, invest no more than 1% per buy-in, as small bids offer the same bet (you will still be left with 99% whether you lose 1% of 100% or 100% of 1%) but come with significantly lower risk.
Before you jump into margin trade, make sure you know exactly what you are doing, so practice capital preservation and risk management until you feel competent enough to handle bids efficiently and effectively.
Crypto Trading is Not the Same as Stock Trading
In stock trading, investors usually sell a company’s stocks if it is not doing well and buy stocks of another company that performs better. This is not the case with crypto trading, where one can always expect major changes to happen suddenly and abruptly (i.e. a bearish coin can make 100% gains within hours based on some whispers or good news). So, if you feel that a coin which is not doing well at the moment is a good long-term bet, try to slowly build a position in it, especially if you are not a frequent trader.
Big Players Can Distort Prices
High-level investors that try to trade their 40BTC at once can distort the market. Look what happens to an exchange with buy and sell orders. Most of the times, when buys ball up the price also tends to go up while when sells ball up the price tends to drop. If someone has deep pockets and tries to sell or buy too hard, they can push the price a tad down or up and accidentally be diving into grey-area behaviour.
It is much more preferred to trade in amounts average for the book you are buying for. When a big investor purchases 5bn worth of sells or stocks, they want to avoid spiking or dropping the price of the asset. For that reason, they buy in chunks.
Consider Setting Stop Orders
A stop order is an order to buy or sell a crypto once its price reaches a so-called stop price. When that price is reached, the stop order instantly becomes a market order. As you can understand, stop orders are subject to fees and slippage. However, it also means that setting stop orders allow you to calculate your risk and protect your investment.
Sure, the volume in crypto markets is low, so prices can drop and eat your stops. Nevertheless, we rarely see very deep and temporary drops. This means that stop orders work as intended in the case of a downturn.
Acting Smart When Trading Cryptocurrency – Safety Tips
Here are some tips to help you stay on the safe side when buying or selling digital coins.
- Watch out for scams – If anything promises enormous returns or free coins, it raises a red flag you should not ignore. Also, stay away from websites that claim they can outperform the market, provided you lend them your coins or an X amount of them. Finally, consider a big risk anything that is not buying a cryptocurrency with a good reputation.
- Do NEVER share your passwords or private keys – Although you will need to share your personal information with the exchange you want to use, including your public address, so as to receive digital coins, you should never disclose your passwords or private keys or give in to anybody telling you that you must. It is even better if you can avoid being online when you enter them.
- Don’t download random wallets – Always do research on the wallet you are about to use because there is some malware out there that will trick you into revealing personal information (and, eventually, steal your money). Instead, wait for an official announcement to be made before you download a wallet and always double check you are using the right link – scam websites run phishing scams by using a similar domain.
- Watch out for Spoofers – If a price dip or spike is too good to be true, chances are it is the work of bots or market manipulators, or both. Stay away.
- Keep an eye out for bots – Many traders use bots to make trades around the clock. Before you use a bot yourself, make sure you have a good grasp of crypto trading and TA because besides white hat bots there are also some designed to exploit poorly programmed bots.