12 GOLDEN RULES OF CRYPTOCURRENCY TRADING

FinanceTrading / Investing

  • Author Maurice Shaw
  • Published June 4, 2023
  • Word count 1,376

There are many books, short guides, and tips on how to do crypto trading. But you can only succeed if you gain experience. Here are the 12 golden rules a crypto trader should follow.

  1. There is no such thing as a win-win situation.

  2. Crypto trading is a "war".

  3. 50 plus 1.

  4. Unfortunately, faith is very important

  5. You are a mistaken

  6. The 80/20 rule of trading.

Beginners lose in crypto trading because they... :

Invest in what you understand

Differences between cryptocurrencies and other markets

Making 100 bad trades fast

Less technical analysis (TA) is better

Emotions are not your friend, but DCA (Dollar Cost Average) is!

They were collected from countless trading books, which were analyzed and used to create these 12 golden rules. Let's take a closer look at them.

  1. There is no such thing as a win-win situation.

Think of a schoolyard swing. Two children swing up and down. There are two states: either one child is on top and the other is on the bottom, or they are balancing in the middle under intense pressure. This is exactly how cryptocurrency trading works. Sometimes nothing happens and prices balance in the middle under strong pressure. However, every time one crypto trader makes a profit, another crypto trader suffers a loss. The swing can't go up on either side. It's simple physics. The question is, why do you think you are better than your counterpart?

  1. Crypto-trading is "war."

In organized battles between states, this is called "fog of war." The general cannot see the entire battlefield, but only what is in front of him. He is forced to make decisions with incomplete information. The same thing happens with cryptocurrency trading. Some traders are always on the wrong side of asymmetry. There are so-called whales - they have so many cryptocurrencies that they can greatly influence the price of a trade. However, only the whale knows when it will make a trade. Sometimes even cryptocurrency trading bots can't get it right. If a message (true or false) pushes prices up, we usually find out too late. The winners in trading are those who have reliable information before anyone else.

  1. 50 plus 1.

Again, a flip. There are only two states the price can be in: up or down. It's a 50/50 question. If we let the monkey trade, there is exactly a 50% chance that he will be right. No one can be right 100% of the time. There is no system that can always correctly predict an irrational and repeatedly manipulated market. The goal of any trader with cryptocurrency trading experience is to be right at least 51% of the time. Every trader should have a tolerance for losing money 49 out of 100 trades.

  1. Unfortunately, faith is important.

No matter how mathematical the system is, our belief in magic and magic gets in our way. Example: the currency is pumping and reaching dizzying heights. We know it's usually too late to enter, but we do it anyway for fear of missing out (FOMO). Or we see trends where there are none. In psychology, there is a separate line of research for this: Prejudice. Bottom line: no one can be rational. In my experience with cryptocurrency trading, it is a mistake to assume that we act rationally in the market.

  1. You are a mistake.

The market is always right. If the market doesn't behave the way you thought it would, then you are wrong. Always and forever.

  1. The 80/20 rule of trading.

Good crypto traders make money on 20% of their trades. The rest is either a draw or a loss. If a good trade makes 16% profit, then a bad trade can make an average loss of 4%. You can achieve this ratio by using a stop-loss. So you can also calculate if you are making a net profit. And you will see that a deal with a 3% profit is not really a win.

  1. Beginners lose in cryptocurrency trading because they:

-Bet too much money

-Are afraid of losing money

-Trade without knowledge, which is like playing the lottery

-Get in when the price is high and lose when it falls

-Hold their positions too long

-Trade cheap coins

-Gambling with other people's money

-Never cash out their winnings.

-Trade too often, which leads to bad trades.

  1. Invest in what you know.

Before you buy a coin recommended by cryptocurrency trading bots, get educated. What do they do? Does it make sense? Or is it at least understandable? The better the product, the more likely it is that the price will rise in the long run. My experience with cryptocurrency trading also tells me not to trade the wrong currencies.

  1. Differences between cryptocurrencies and other markets

-Cryptocurrency markets do not sleep, they are open 24/7. The cycles between euphoria and depression are X times shorter. Cryptocurrency trading is lightning fast. If the stock market "sags," it can pause for weeks or months. In cryptocurrency, next week will be different.

-Volatility - that is, price swings - of 30% a day is almost the norm, and up to 100% (the flash crash of Ether in 2017) is not out of the question. It takes guts to do that. Mainstream media, for example, is too slow for cryptocurrencies. If an article says bitcoin is down 30%, the situation will have already changed by the time the author publishes it on his site.

-Stock traders think in %. Traders with experience in cryptocurrency trading think in X (as an increase or decrease by X times).

-Illegal activities such as insider trading happen everywhere. However, in the unregulated cryptocurrency space, they are more common and their consequences are more significant. In cryptocurrency, the knowledge advantage is even more advantageous. This is where cryptocurrency trading bots become a valuable source of information.

-Herd mentality. Technical price analysis can work well in the cryptocurrency space because the market is small and there are many participants doing analysis. If many people trade based on the same results, then the predictions come true.

-Sometimes it is better to invest in a currency with a smaller market capitalization because it has a better chance of being in the top 50. For example, Elrond EGLD and Terra LUNA are cool projects in the top 50 cryptocurrencies with smaller market capitalizations.

  1. Make 100 failed trades quickly.

The only way to increase your probability of winning is to get real experience with cryptocurrency trading. Reading books won't help you. Trading with play money won't help you either. Only real trading with real money will bring experience, understanding and success (if any at all). Start small. Start with 100 euros. When they double, add another 200 euros. When that 400 euro doubles, repeat the process. Only make deals with amounts that won't make you nervous. Being nervous is bad for business.

  1. less technical analysis (TA) is better

Learn the terminology: moving averages, stochastic RSI, trend lines, basic principles of candlesticks, rising and falling channels, bullish flags, breakouts and bevels. You can "zoom in" on TAs, you can form them based on daily, hourly or minute values. The shorter the time scale, the more error-prone the model is. Don't look for things in minutes that you can't recognize in hours.

  1. Emotions are not your friend, but the DCA (Dollar Cost Average) is!

It's all too easy to get caught up in emotions during a winning streak or, conversely, depressed during a losing streak. In both cases, the end result is more often than not the same: bad trades leading to losses.

Just like a World Championship Boxing fighter who trained hard to become the athlete he is, discipline and unemotional focus are the key to becoming a successful crypto trader when it comes to the golden rules of #2, #3 and #6.

The best trading strategy in the world will keep making you lose money until you realize it. You can try investing small amounts of money in the market on a regular basis. If your goal is to invest $500, try investing $100 every month.

In other words, if you've lost three trades in a row, it's time to get out of the game and "regroup" for a while. Conversely, if you've won several trades in a row, don't be overconfident, as this will inevitably lead to ruin.

So be humble, cautious, and leave your emotions behind closed doors. They will always be waiting for you at the end of the trading session.

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