This article is for those new to cryptocurrency. We will analyze such things as choosing a market for trading. Let’s talk about creating a trading system and technical analysis.
Most likely you are looking at Bitcoin or altcoins, and you are guaranteed to have heard that it is cryptocurrencies that provide the best opportunity to earn money right now. So is it worth trading Bitcoin and cryptocurrencies?
The answer is no, for the reason that you need to work in the market that you understand. We cannot know what experience you have and in what, but in order to predict where the price will go and do it right, you need to understand what drives this market.
To date, there are many opportunities to engage in trading, and cryptocurrencies are only a small part of the huge market, trade stocks, energy, agricultural commodities, local currencies, industrial or precious metals, and more. In fact, there is a trading instrument for any commodity that will allow you to speculate on its rate without leaving your home, simply by connecting to the exchange.
You need to choose a market for trading which you understand, where you can estimate with a high enough probability what stage it is in so as not to play against the market – this is an extremely dangerous activity and the winners in it are considered not as a percentage of all participants, but individually.
And if cryptocurrencies are still beckoning, you will have to read textbooks, although they are not specifically for bitcoin and altcoins. There are reputable analysts, there are various price models, there are a huge number of traders who sell their training, but none of them can give you a guaranteed understanding of the market. You will have to process a lot of information, form your opinion, repeatedly make mistakes, and only then a positive result is possible.
Another tip is that there are various specializations in the world of cryptocurrencies, some trade only Bitcoin, others prefer altcoins, new trends are the search for coins that will shoot, earnings on token sales, and other options will appear. Each of them requires special knowledge and skills, so do not try to cover everything at once.
And when you find the market that is right for you, the next step is to build a trading system.
The second step is creating your personal trading system. Why personal, because as we have already said, not a single textbook and not a single trader will ever teach you the correct, that is, profitable trading, you can do this only on your own. Of course, those who sell these textbooks or training courses will never tell you this, but once you start learning, everything falls into place.
Market analysts, both cryptocurrencies, stocks, and others, are often joked that they cannot say for sure what will happen tomorrow, but they can always explain what happened yesterday. In fact, this is the truth, because the future is unknown. If you open any textbook on technical analysis, then next to each figure, it will be noted that it mainly breaks in the direction of the current trend, or against it. The ending is not important, pay attention to the word “predominantly”, that is, according to statistics, most often the price in such a situation will go in this direction, but in fact it may well choose the opposite direction and thereby multiply your deposit by zero.
It doesn’t matter which method you use, trend trading, oscillators, candlestick analysis, Elliott waves, vertical volumes, or whatever. Those who use these mechanics will claim that they really work, but in fact, it is they who actually succeed in making money using this method. You have to remember that there is no one hundred percent winning trading system, but there are many tools that you can use to create your own. A successful trader is the one who has found those tools that help him to analyze the market and close deals so that most of them are profitable and at the end of the month he will get income.
A common story of a newbie on a cryptocurrency exchange: you get the first hundred dollars, buy the full amount of Bitcoin, the next day you will find out that your transaction drop -10% -15%. Further, the situation can develop according to various scenarios, for example, you fix a loss and try to open a new deal with the same ending.
Another scenario of an unsuccessful start, you leave this position until the best time, we are talking about spot trading, we hope that a newcomer to the market will guess that getting into futures, and especially with leverage, is definitely not what traders start with. You add another $ 200 to the balance of the exchange and try to make money on trading altcoins by buying them for the full amount. The result is likely to be the same, that is, negative.
What is wrong here, because the first transactions do not necessarily have to bring profit, sometimes, in order to start earning, you have to get big and drain the deposit, gaining valuable experience. The root of all evil is not in losses, but in the fact that when you open trades, you absolutely do not think about your trade balance or your deposit in the long term.
Professional traders always use the rules of risk control, many of them use a standard approach and it is better for a beginner not to invent anything. There are only two rules:
The first is the 2% rule. Each trade you open must imply a maximum allowable loss of 2% of the total amount in your trading account. That is, having a conditional $ 100 on your account, when opening a deal, you cannot risk an amount over $ 2. This is quite difficult because you have to place your stop order in such a way as to account for the exchange commission, the possibility of slippage when the order does not work out at the set rate, as well as the market noise so that you are not knocked out by normal market volatility. In cryptocurrencies, it is especially high, so if you reinsure yourself too much with a stop order, you will constantly end up at a loss on market fluctuations, even if the whole deal is opened correctly and then the price will go in the right direction.
The second is the risk control rule, called the 6% rule. It consists of two parts: first, all trades you open in total should not threaten to lose 6% of the trading account balance. Taking into account the previous rule, you can simultaneously hold three trades, the risk for each of which does not exceed 2%. If some deal is profitable and you have fixed it with a stop order, then feel free to open another one, of course, if your trading system has given the required signal. That is, there can be as many open trades as you like, but with a risk of loss of no more than three, each of which does not exceed a potential loss of more than 2%.
The second part of the six percent rule sounds like this, if you are unlucky and you have received a total loss of 6% of the deposit, then this is not your month and you need to stop trading until the next. It is this part that is the most difficult and experienced traders with a long history of successful trading often lose money on it. The reason is extremely simple, you lost money, you want to return everything because you are confident in your coolness and start acting on emotions, ignoring market signals, risk control rules and just common sense. As a result, you lose to zero, draining 100% of the deposit, but you could only lose 6% and rest and do self-education until the beginning of the next month.
This is the most difficult section, because no matter how much we talk about it, the effectiveness will still depend only on your personal endurance. We are talking about discipline, which is in the first place for a trader, you must have high emotional stability, moreover, you must be in fact a robot that acts according to instructions and nothing can change the given behavior model. Each trader tests the strength of his discipline every day and it manifests itself in completely different things. Let’s take a look at a few examples.
So, the most particular case is how you open or close each trade. Any position on the exchange is your experience, and you should get it regardless of whether you make or lose money. Therefore, you must fix how and why you opened a trade, at what levels you placed a stop order, what targets for it and when you will close. All this carefully write down in paper or digital form, at your discretion, it is good to add screenshots of the schedule. This is necessary to develop statistics, so you can understand which trades and signals work best in your case, or do not work, because losing positions also provide valuable experience. If you do not write down how you entered the deal, then later you will not be able to understand where the mistake was made and will repeat it over and over again. What does discipline have to do with it? While you have to do this at all times, you are going to be a trader for the next ten years, please be so kind as to log every trade without exceptions all this time.
Another important aspect is risk control, which was discussed in the previous section. Only you yourself decide how much to enter the market and continue trading or not, even if a losing streak has begun. The highest art of a trader is never to take high risks in pursuit of possible profit and definitely never try to return money if the 6% rule worked and you went into the maximum allowable minus on the deposit. Do you have enough willpower to stop? Believe me, the market will definitely test you in such a situation, giving a signal for a very attractive deal. Many people break down and lose all their money.
And also, without discipline, you won’t find your winning trading system or you won’t be able to keep it. Because no system gives a guarantee, it is good if it allows you to take profit in 60% of transactions, this is a decent indicator, subject to the rules of risk control. But the market changes every day, which means that over time, your trading system will stop working and you will need to find a solution to change in order to return the acceptable ratio of profitable and unprofitable trades. The main thing is to identify problems, here you will be helped by records of transactions, to understand what has changed in the market and to apply other methods of receiving a signal to open a position. All this needs to be carefully checked and then returned to trading. Withstand, or start to act emotionally trying to return the profit at random, it depends only on you and will certainly affect the balance of the trading account.
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