We recently wrote about the relation of the price development between BTC and altcoins, but think there might be some fundamental stuff we need to add on top. We cannot say it is a bad idea to trade altcoins in general, though we think there are several points to consider. So, if you want to have ongoing results buying/selling Altcoin it’s important to take the right steps. Please note: it is normal that sometimes a stop loss gets hit, don’t connect to hard with your chosen altcoins – it is all about the overall percentage value, which can define you as a profitable trader. This post is mostly about day trading altcoins, but much of the stuff shared, is also useful to know as investor.
Altcoins often lose value
Yeah this is a tough statement with many exceptions, but you can still say that this is the general rule for the majority. Many of those coins / tokens slowly lose their value and sometimes the process can be pretty fast. It’s important to consider this fact when you hold Altcoin for a mid/long term and shows how critical it is to pick them carefully. You should always consider the purpose of making a particular trade. The coins with a high daily trading volume, a large community, and non-stop development will be here for a long time. There are several examples with high volumes of daily trading. Make sure to follow a coin’s chart and define the low/stable periods. Those periods will probably be a consolidation period of whales. When the right time arrives they’ll get a positive press release, a hype by a community or other groundbreaking news. Serious projects are interested to keep their price up, as this is the perceived value of their company. Good news will result in a pump and you could sell your coins at profit or enjoy a new area of support. The smaller the project, the smaller the trading volume on a particular coin is, the higher the risk. There are also altcoins like Ripple or Stellar Lumens which are backed by Silicon Valley money, and usually those investors won’t let a project die. A rule of thumb we use is to only trade legit, bigger projects with an actual outlook for the future. If a trade fails and the price falls, there will be a recovery later, once news fly in or other good stuff happens. See $XRP – so many traders lost their hope and sold in loss – look at the chart and how rich they could be by now:
Stay on top with Social Media
Cryptos in general are very volatile as the majority of the investors are guys like you and me. News can be a huge incubator for those coins and the market price reacts very strong to those in cryptoworld. If you plan to hold a coin long term, you might want to subscribe the several social media channels like facebook, twitter, their discord or telegram channels to stay on top of things. Not all news are good: Visa denies to cooperate with the coin that wants to issue a crypto credit card? Price will plummet. Rumors coming up that POWR will have partnership with TESLA, price will go up and so on. Sometimes stuff comes out, like a big investor sells a lion share off the counter and the price will fall. It is simply market dynamics – there are good news and bad news, price goes up and down. So stay informed.
Set a target level
When making an Altcoin trade it’s important to set a target level for profits, as well as a stop-loss level so you can minimize losses. Unfortunately on BITTREX you can only use one of these both, happily BINANCE recently added the stop loss and take profit. Trading can result in experiencing losses and therefore you must protect yourself to limit this loss. Always recall that a trader is all about limiting loss and play the safe card, a gambler thinks only about his gains. So what’s a stop-loss? This is about setting the loss level where your trade will get closed. It’s about cutting your losses. It’s important to consider this option to make sure your losses are limited. You can use this smart methodology to stay safe and lock in profits at the same time: Once the price has increased by some % you set your stop loss above your buying price (consider the trading fees), if the price increases more, you increase the stop loss level – from here you definitely close the order in profit. Just keep on going like that if the price rises. This will ensure you are closing the trade in profit and additionally you can take much more profit with you, then with a set target where you lock in all profits from a certain level. However, with this methodology you have to be closely monitoring the charts, eyes glued on the screen. If you leave, set your stop-loss, your targets and have fun.
It’s critical to weigh various factors when selecting the right level of stop-loss. The majority of traders fail when they become fans of a trade or a coin itself. They have the belief that things will turn around and they’ll get out of the roll with small losses. What’s wrong with this approach? It allows the trader’s ego to control them. It’s important to keep in mind that crypto trades are different from traditional stock exchanges. That’s because big daily movements result in shifts of sometimes really big % values. Trades of crypto-currencies are much riskier, but also much more rewarding. In fact, it’s possible to experience coin dumps of 80% in just a couple hours. On the other hand you can see this kind of big increases as well on the other site and you don’t need any leverage to make nice profits.
It’s critical to set goals by placing sell orders. There’s no way to know when a whale will pump up the coin to catch up with your order. This will result in paying a lower fee on the so-called “maker” side. This is definitely an important issue to keep in mind in order to get the best results.
So what’s a good strategy to have? You should consider super-low buy orders. For example, when a big dump happens it can cause an Altcoin being sold at one-quarter of its value, for example. The market can still recover and it’s still possible for people to boost their investment 2x or 3x. It’s important to use special care when you put in buy orders. It’s important to avoid realizing when you’re far from the market to discover the buy order has quickly become higher than today’s market price. This is a critical issue to keep in mind.
Leave your ego at the door
The goal is to turn a profit instead of making the right trades. Don’t’ waste resources in order to prove you should have entered a trade. There’s no trader in the world who never suffer any losses even if it’s a rare event. What steps should you take? Your goal should be for total profits to get higher than total losses. If you achieve that goal then you’re on the right track. It is not about being right, the markets will do, whatever the markets want to do. Technical analysis can be perfectly done, and still the result can be dead-wrong if BTC goes for another bull run. It is not about you. You can’t predict the future, accept that. You will face a loss sooner or later, better be prepared and deal with it. Nobody likes the feeling of losing something it is in our brain – and the reason why most traders fail.
Use good risk management
If you want to become a profitable trader it’s important to avoid looking for a movement’s peak. You should look for small profits that will add up to a large one. It’s critical to wisely manage risk across the entire portfolio. As an example, you shouldn’t invest in more than a 2% of your funds in a market that’s non-liquid or sky-high risk. There should be a higher tolerance for those trades. The stop/target levels should be picked/traded far from the level of buying. Bitcoin is an asset that’s super volatile. It’s important to consider this fact and particularly when the value of Bitcoin moves a lot. There’s an opposite relationship of Bitcoin/Altcoin in terms of the value. That’s when the value of Bitcoin increases and Altcoins lose Bitcoin value. The vice versa situation won’t help often, but if BTC moves sideways, it’s Altcoin time. In the case of Bitcoin’s value is volatile the conditions used for trading aren’t clear. It’s tough to estimate the future in that situation so it’s better to have closer targets for trade or don’t trade at all.
Have a reason for each trade
You shouldn’t begin a trade until you know exactly why you’re making it. You should also have a strategy you’ll use afterward. Keep in mind that trading is a “zero-sum” game so not all traders can make profits by trading. That’s because traders who make gains are benefiting from others’ losses. The market of Altcoins is driven by big whales who are responsible for putting gigantic blocks of hundreds of Bitcoins on order books. They wait patiently for small traders to make errors. Even if you hope to trade daily it’s sometimes better not to trade and do nothing rather than jumping into the situation and risking loses of coins. So, in fact, there are times when you can hold onto profits by not making any trades. This can be tough but it’s definitely a step you should consider since it can help to maximize your profits, which is definitely something you’ll want to do when making Altcoin investments.
Trade under the right conditions
It’s important not to start trading without the best condition. That will make it easier to start the trades and also know when/how to get out of the situation. When there’s pressure it produces losing trades a vast majority of the time. A better option is just to wait for the next opportunity in order to get better results. There is no rush. The markets have been there yesterday, the markets will be there tomorrow. Wait for a stable BTC to get into your trades.
Always move forward
As with other types of investments, Murphy’s Law often applies in the world of crypto. For example, let’s say you made an outstanding trade but as soon as you sold you’re the coin spikes again. Make sure to avoid entering a position again based on pressure. You’re in good shape just so there’s been profits made from your investment. The key is to keep moving forward by making your next trade. This will help you to maximize profits. Don’t fomo into trades, it often does not work out as expected. Once sold in profit, simply be happy and move on. Close the tab and try to not check out what you might have missed out. Enjoy your profits and done. It also runs often the other way. You enter and the price falls like a rock. If you entered a legit coin with volume and active development it might be the best bet to sit it out, even if it takes weeks. There is only loss if you sell in loss and as we are trading non-leveraged assets we can effort it. However, if you go all in, which is not advisable, the pressure will be hard…
Watch out for FOMO
This is the acronym for Fear of Missing Out. It’s never fun to experience this when you’re on the outside watching in. This includes a particular coin spiking and possibly getting a double-digit gain in just minutes. Why is this a tough situation? The reason is you feel like you’re the only one missing out on big Altcoin gains. In this situation, you’ll observe people flooding online Crypto-currency forums and chatboxes by trolls talking about the pump. It might seem tempting to jump in when others benefiting from the pump. That said, it’s important to note that the whales are waiting for small buyers to sell coins that they purchased for lower prices. In this situation prices are high and it’s obvious the current holders of Altcoins only include little fish. The next step is typically a bright red candle that sells the entire order book.
Buy the rumor but sell the news
When big news sites publish articles it’s typically the right time to pull out of the trade. That’s because it’s then usually tougher to earn the big profits that were possible in the past. For example, consider the number of multi-millionaires who invested early in the next big startup. The bought the “rumor” and it resulted in big profits. However, when a particular crypto-currency makes the news it’s often the best time to leave the trade. We exit most often one day before the actual news. Check out Coinmarketcal for upcoming, promising news like coin burns and enter when the price is low. As the targeted comes closer, the price is likely to rise. Don’t get greedy and sell before the news with profit.
More trades mean more fees
It’s a good idea to post the command instead of buying from an order book. Check the difference to see whether maker or taker benefits. Even a small difference of 0.1% is actually quite high. Even when fees seem low they can add up quickly. This can have a devastating effect on your investment and profits so it’s definitely something to keep in mind. Also we tend to have longer running trades, as we pay less fees. You win rate (closing a trade in profit) will decrease the more trades you run at the same time, this is natural.
If you found this topic interesting and matching your current education state, you might have a look into our Cryptocurrency Beginners Guide. Stay safe!