Cryptocurrency trading tips
A strategy is a useful decision-making tool, but it will only take you so far. Many other factors combine to determine your success as a trader – including your experience, discipline and use of risk-management tools. Consider these tips to get the best out of your trading:
1. Learn about cryptocurrencies
Take the time to learn about cryptocurrencies, blockchain technology and financial markets, so you understand what you’re trading. This will be an ongoing process, as the markets are constantly evolving and move in response to news regarding technical developments, hard forks and regulation, among other factors.
2. Create a trading plan
A trading plan is a comprehensive blueprint for your trades. It might set out details of your attitude to risk, objectives, trading strategies, risk-management rules, and more. It can also detail the markets you intend to trade – for example bitcoin, ether, litecoin and ripple. Learn how to create a trading plan.
3. Practise trading
Those new to cryptocurrency trading might want to start with a demo account to learn the ropes. You can use this to test your trading plan thoroughly, and revise it as much as necessary, before moving onto a live account. You can also join IG Academy to build your trading skills.
Utilise risk management strategies and tools
1. Calculate your risk-reward ratio
Before placing any trade, decide whether the risk involved is worth the potential profit – known as its risk-reward ratio. For example, if the potential loss is £100 and the potential reward is £300 then the risk-reward ratio is 1:3. The ratio you choose will depend on your risk appetite, personal circumstances and strategy. Find out more about managing your risk
2. Use stops and limits
A stop will automatically close a position if its price moves against you by a certain amount. IG offers:
• Basic stops, which are free but could be closed at a worse price than requested if the market moves quickly or ‘gaps’
• Guaranteed stops, which will always close a trade at the exact level you specify. You’ll pay a small premium if a guaranteed stop is triggered
• Trailing stops, which follow positive price movements to lock in profits. Again, these stops are not guaranteed, so could slip if the market moves quickly
You may also want to consider using a limit, which will close the trade automatically once it has earned a certain amount of profit. Find out more about stops and limits
Try to remain disciplined when trading cryptocurrencies, by only placing trades that are in line with your trading plan. This will help avoid common pitfalls that arise when emotion affects your decision making – such as chasing losses or getting overconfident from a winning trade.
What’s important is that you focus on the quality of your trades, rather than the quantity.