It doesn’t matter how skilled you are in trading as nothing can be done to protect a person against the power of cryptocurrency price fluctuations. Currently bitcoins are (BTC) Volatility, the standard measure of daily fluctuations, is 64% on an annual basis. For comparison, the same metric for the S&P 500 is 17%, while the volatility specification for WTI crude is 54%.
However, it is possible to avoid the psychological effects of an unexpected 25% intraday price spike by following five basic rules. Fortunately, these tactics don’t require advanced tools or large sums of money to hold in times of high volatility.
Plan not to withdraw any money in less than 2 years
Let’s say you have $ 5,000 to invest, but there is a good chance that within 12 months you will need at least $ 2,000 of that amount for travel, car maintenance, or other chores.
The worst thing you can do is get a 100 percent allocation to cryptocurrencies as you may have to sell your position at the worst possible time ever, maybe at a cycle low. Even if the proceeds are planned to be used in decentralized financing pools (DeFi), there is always the risk of impairment or hacks that jeopardize access to the funds.
In short, all funds allocated to cryptocurrencies should have a two year lockup period.
Always dollar cost average
Even professional traders get carried away by the Fear of Missing Out (FOMO) and indulge in the urgency to get a position as soon as possible. But when everyone is consistently getting 50% and higher returns, and even meme coins are getting great returns, then how can you stand aside and just watch?
The DCA strategy is to buy the same amount of dollars every week or every month regardless of market movements; For example, buying $ 200 every Monday afternoon for a year removes the fear and pressure of constant need to decide whether to add a position.
At all costs, avoid buying all positions in less than three or four weeks. Keep in mind that the crypto adoption rate is still in its infancy.
Do not use too many indicators in the analysis
There are tons of technical indicators out there including the Moving Average, Fibonacci Retracement Levels, Bollinger Bands, Directional Motion Index, Ichimoku Cloud, Parabolic SAR, Relative Strength Index, and more. When you consider that everyone has multiple setups, the ways to track these indicators are endless.
The best traders are skilled enough to know that reading the market properly is more important than choosing the best indicator. Some prefer to track correlations with traditional markets while others focus solely on crypto price charts. There is no right or wrong here other than trying to track five different indicators at the same time.
Markets are dynamic, and that is especially true of cryptocurrencies, considering how quickly things change.
Learn when to step aside
At some point you will misread the market while finding lows or altcoin seasons. Every trader gets wrong sometimes and there is no need to raise the stake immediately to make up for the losses. This is exactly the opposite of what one should be doing.
Whenever you take a “bad break”, step aside for a few days. The psychological effects of loss put a severe strain on your ability to think clearly. Even if a clear opportunity arises, let that one slip. Go for a walk or try to organize your life apart from trading.
Truly successful traders are not the most gifted, but the ones who survive the longest.
Keep investing in winners
This could be the hardest lesson of all as investors have a natural tendency to take profits from our profit positions. As mentioned earlier, the volatility of the crypto market is extremely high, so striving for a 30% profit will not cover your past (or future) losses.
Instead of selling winners, traders should buy more of them. Obviously, one shouldn’t neglect market data or general sentiment, but if your expectations remain bullish you should consider adding until the broader market signals some form of weakness.
Eventually you will get a profit of 300% or 500% if you are brave and stick to the most profitable positions. These are the returns you expected on entering such a risky market, so don’t be afraid if they show up.
Every rule is meant to be broken
If there was a roadmap to cryptocurrency trading success, many people would have found it after many years and the returns would quickly fade. Therefore, you should always be ready to break your own rules every now and then.
Do not blindly follow the investment recommendations of influencers or experienced asset managers. Everyone has their own risk appetite and the ability to add positions after an unexpected setback. But more importantly, take care of yourself along the way!
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.