● To discuss the key components of understanding a successful approach to trading.
● To cover the risks that are imposed by trading in an immature and volatile market.
● To understand the requirements of profitability while managing the increased risks.
Trading in the world of cryptocurrency can be paradoxical. On the one hand, we have a largely volatile market that can deliver significant profits. On the other hand, it is widely accepted that to be successful in trading you need experience and discipline, culminating in a robust trading plan. The extraordinary opportunities on offer can, at times, act as a cover to the greater risks that are involved in pursuing such rewards.
This article will aim to address the complexities of trading a maturing market, the risks (especially if unmanaged) of chasing greater opportunities and how this can be assembled into refining your trade execution.
Trading cryptocurrency markets sees a mixture of trade execution combined with breakneck market conditions. Collide these factors without experience, discipline and planning and you have a recipe for a disastrous trade. The allure of substantial profits can unduly influence financial decisions, obscuring the due diligence that they deserve. How can we can bring some realisation into moving slower with measured actions towards all of this volatility, hype and noise, bombarding you from all directions?
Well, let’s find out!
Clear Mind and Making a Plan
A sensible start is to first gain an understanding of the market that you are trading. Cryptocurrency trading is a speculative activity and the asset has to be sold to realise any value, placing the onus firmly onto the trader. It is not usually an asset that yields income. Alongside corrections of close to 90% being nothing new, it is paramount that the trader is entering positions with a clear mind and a plan.
To get to the stage where trader’s understand the mechanics of trading, the reactions of such a “provocative” market and being able to manage their emotions, takes experience. This is only gained through time.
Trading longevity requires thousands of hours of study, not only covering the literature aspect, but through further understanding how to apply it to live market conditions. There are no shortcuts.
The importance of this cannot be stressed enough in relation to online marketers promoting their trading tuition services in return for financial recompense. Trading is a serious business, making the responsibility of teaching of it even more significant. If one is being taught incorrect behaviours in this instance, it will have disastrous financial consequences.
Understanding a Sustainable Trading Approach
The current climate surrounding cryptocurrency trading (on social media) is becoming discourteous to the skill required to be an established trader. As mentioned above, there is currently a movement where traders are becoming self-gratified from charting material published on social media, with these quickly leading to paid income from trade ideas. The irony is that many are not actually taking the trade position, that they are advising others to take. This is not a sustainable approach for longevity in “the game” and is probable to slip into the “get rich quick” pitfall.
Wins / Losses
Trading is profitable over time through gains from winning trades being greater than losses from losing trades. Quantifying trade entries and exits, knowing when to cut a losing trade and understanding when to exit with profit, are all skills that are refined over the lifecycle of a trader. Effective traders will maximise their winning trades from what the market will allow, while strictly limiting their losing trades to a predetermined percent of their trade capital.
(For a more in depth analysis on trading plans, I recommend an article by @CryptoCred found here https://medium.com/@cryptocreddy/anatomy-of-a-trading-plan-36388a9d85bd)
Flowing with the Market
Traders with experience are not married to a bias and are able to flow with the market. A trading plan will allow the trader to execute their rules into strategic plays and this will further enable them to remain objective in their approach. Markets are uninterested in the views of a trader trying to prove that they are right, they work on their own agenda. Watch the market, make notes and understand how it is behaving. The probability of becoming profitable is increased for those that gain this historical edge and are able to position accordingly. Also, it should go without saying that concentrating on price action will mean largely ignoring distractions such as “industry gurus”.
The mindset of a trader must be clear of noise and emotions. The implementation of a trading plan will allow this, and through trading the chart (not one’s emotions) the trader stands a greater chance of being profitable. It is also worth considering that every trader is different and as such their own specific trading style is likely to differ from others. Personal trading strategies are likely to fit in with the individual’s own risk tolerance levels and personality.
It is further worth considering that although trading styles may vary significantly from one trader to another, many traders will share the common theme of actually enjoying to trade. If there is no enjoyment, or at the very least some stimulation to trade, it is likely going to negatively affect the chances of succeeding with longevity in the game.
Risks and Opportunities from Trading Cryptocurrency
Cryptocurrency is often reported as being an unsafe market to trade by the mainstream press, and if you focus on the “worst-case incidents”, many would appreciate the risks involved. The cryptocurrency market has been in development for a little over 10 years since its inception, and it is a market that has yet to fully mature. Trading an immature market such as this can bring some extreme price fluctuations, and while this will see many on the end of losing trades (as a consequence of a lack of experience, among other things), traders limiting their total risk exposure will prevail over time.
You are also trading against others who have experience, power and edge, and this needs to be respected. Whether there are trading institutions or whales making big plays, or you are up against individual traders with edge (a unique set of skills that allow superiority over the market), hard work must be applied to be able to realise, match or better such entities.
A mature market will offer stability, however stagnation sees restrictions in the growth of future earnings. It again comes back to managing opportunity and expectations alongside risk. If you are working within the parameters of a well-rounded system, this can alleviate some of the risks by minimising those dangerous episodes such as forcing trades.
The opportunities in trading a volatile market are substantial for an experienced and well-rounded trader and sharp fluctuations in price action will offer significant profits to a balanced plan.
“Patience is bitter, but its fruit is sweet.” (Aristotle)
There is an abundance of ways to trade a market. These will align with a trader’s personal preference on how they form their own trading plan, their risk tolerance levels, the type of market and its behaviour, that will ultimately shape the trade. Markets can trend, reverse or consolidate, so being able to flow in company with a clear state of mind will develop your trading edge for execution of trades.
“Life is a series of natural and spontaneous changes. Don’t resist them — that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.” (Loa Tzu)
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About Strong Writers
Strong is a freelance cryptocurrency content writer, as well as a passionate contributor in Technical Analysis and Charting.
Honesty and integrity are paramount values to Strong, he continually helps cryptocurrency followers, both new and old, progress in this up and coming industry.
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