How To Avoid Losing Money in Crypto – 5 Essentials

Crypto trading nowadays is a big chance to make money for “everyone”. Signups at crypto brokers are easy and fast and sometimes there is not even an ID verification needed. When having filled in an email and password, the user just needs to click the link in the email confirmation mail he gets right away – then he’s ready to make the first deposit. If it’s a Bitcoin or other crypto deposit, this step is again super fast.

Then the fun begins: Setting orders and playing the game. But crypto trading is not just about knowing how to set an order, getting a coin and waiting for the great profits crypto got famous for in the field of trading.

You must have certain skills – a precise plan how to react on certain changes in price. Like when price simply turns around, against your position. There we come to the first and most crucial way to avoid losing money in crypto:

Care About Proper Risk Management

What new traders often don‘t know, is that a stop loss is not just an optional order type which experienced traders use from time to time – it‘s obligatory for each trade from a professional point of view. Professional traders use a stop loss in every trade, as a clear decision about the loss they are willing to take is as important as their plan where to take profit.

Don’t Chase The Price

Newbies tend to buy a coin, when they see a rising price on a chart. That’s the typical behavior of the unprofessional crowd: Getting “fear of missing out” when they see an ascending price. The expectation in crypto is mostly that price could still go x times higher from the entry point.

But often it happens that the buy level of the newbie unfortunately was short before the peak after which price will just go down again for a long time. So inexperiences traders tend to follow a wrong bias.

Limit The Money You Put in Single Trades

One of the biggest mistakes novice traders make, is putting too much money in a single trade. Since each trade always includes a risk, it‘s simply a numbers game how much of your whole capital you should risk each time. Too much capital in single trades can lead to a massive reduction of the whole trading capital in short time. But that‘s what often happens to beginners. Professional traders don‘t do that.

Traders shouldn‘t take more then a few percentages of their whole trading capital for a single trade. Max. 5%. So if you take 5% of your whole trading capital and the risk of this single trade would be 10% (meaning you put your stop loss at 10% below your entry), then it would be a 0,5% loss for your whole trading capital. (10% of 5%)

On the other hand, if the trade becomes a success and you could take, let‘s say, 150% or even way more profit, you‘d have gained at least 7.5% on top of your whole trading capital at once, which is massive. Tell that to a Forex or Stocks trader!

Just imagine you could catch a couple of such pumps and would be able to take profits from 100% to maybe even 500%, your whole trading capital would be doubled fast, even while sometimes being stopped out with the small losses as described.

Don’t Use Leverage!

Trading with leverage (borrowed money which you have to pay back including fees) is a highly risky tool and should exclusively be used by professional traders with years of experience. For people with little trading experience margin trading is really just like gambling. Before you do that, you might have more fun playing a slot machine which at least offers some fancy graphics and sounds while it is swallowing your money.

Treat Trading As A Business – Which It Is

You must be aware that each business has both returns and expenses. The challenge is to cut losses short and try to keep the returns significantly higher over time. A business requires that you keep track of all profits and costs, so that’s what you need to do in trading as well: Accounting buys, sells, profits and losses in a trading journal that always shows you at a glance where you stand.

 

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