Cryptocurrency entrepreneurship has become a lucrative and exciting field in the digital age. As the popularity and acceptance of cryptocurrencies such as Bitcoin, Ethereum, and Litecoin have increased rapidly, the opportunities for individuals to benefit from this emerging market have also increased rapidly.
The world of cryptocurrency can seem daunting and overwhelming. With a plethora of coins, exchanges, and technical jargon, it can be challenging to know where to begin. In this article, we will provide a comprehensive overview of the basics of cryptocurrency, including what it is, how it works, and the essential steps to take when starting your cryptocurrency journey.
Understanding the Factors Affecting Cryptocurrency Prices
The main rule of trading and investing in cryptocurrency for beginners is that the price of a cryptocurrency is influenced by many factors. Factors like the law of supply and demand, and Media influence. Law of supply and demand Bitcoin’s supply can be compared to gold, as there is a predetermined maximum number of coins that can be put into circulation, similar to how the total amount of gold on Earth is known. The analogies do not end there, because miners first need to extract gold from the mines to then bring it to the points of sale; Bitcoin miners (miners) must do the same to create new Bitcoins.
Media influence. Increased media coverage leads to a greater understanding of cryptocurrencies and Bitcoin by the general public. Positive media coverage of Bitcoin will typically cause its price to rise, while negative news about the coin will have the opposite effect on the price of the cryptocurrency. It is also important to note the “crowd effect” that certain news causes in the media. A crypto investor who discovers certain information in the media will quickly share it with his friends, who will do the same. Given the power of social media, news will spread like wildfire, influencing the price of Bitcoin. Therefore, it is necessary to stay up to date with the latest news about Bitcoin and other cryptocurrencies so as not to miss future bullish or bearish waves.
Risk Management In Cryptocurrency Trading
When trading cryptocurrency as a newbie, it is important to manage risk by using stop losses, limit orders, and protect yourself from fraud. Develop trading strategies that will increase your chances of winning while reducing your chances of losing.
The first step in risk management is to identify potential risks. This could include things like price volatility, fraud, and cyber attacks. Each of these risks can lead to significant losses for the trader. Therefore, conducting research and assessing the risks associated with specific cryptocurrencies is important before deciding to buy or sell. Once the risks have been identified, the trader must develop a risk management plan to help him effectively manage the risks in the trading process.
Three pillars on which risk management stands: Limiting transaction risk. The risk amount of a trade is the difference between the purchase price (entry position) and the stop loss level. It is recommended that the risk of one transaction does not exceed 1.5% -2% of the total capital. Limiting capital risk. The general rule is that the total risk of all transactions should not exceed 20-25% of capital. This means that if you close all orders at a loss, you should be left with at least 75% of your initial capital. Determining the profitability of a transaction. To compensate for possible losses and generate income, the ratio between income and risk must be 3:1 or 2:1. The income amount is the difference between the entry position and the profit-taking level (TakeProfit).
Risk management is an important aspect of cryptocurrency trading. Identifying risks, diversifying a portfolio, and using stop losses can help a trader reduce risk and protect their capital over the long term. If you want to trade cryptocurrencies, then remember to follow these risk management principles.
Tips to follow as a beginner
Do not spend a large amount of money at once
For someone new to cryptocurrency trading, it would be a mistake to invest large sums of money in Bitcoin or other cryptocurrencies at once. Cryptocurrency is very volatile – the price can change by tens of percent per day. For instance, Start with $200 instead of buying $1000 worth of cryptocurrency at once. If the price of the cryptocurrency is moving in the right direction, buy another $200. Continue to buy more until you have spent the pre-planned amount of money. As a beginner in the crypto market, it is important to start small and gradually increase your exposure to cryptocurrencies. Remember that the crypto market is very volatile and prices can fluctuate dramatically.
Maintain mental stop losses
Stop loss – an exchange order to limit losses when the price of an asset decreases. Tied to a predetermined price
It is always wise to stop losses. “Hard” stop losses are often ineffective because the price of the cryptocurrency changes widely. Instead, use mental stop losses and be disciplined.
An alternative method is “time stop”. Tell yourself that you will sell the cryptocurrency by a certain day, such as Friday. This is an effective way to force yourself to take profits and cut losses.
Automatic closing of a trade is important not only for clearly identifying risk but also for closing an order under any conditions, which is very important in online trading.
Use technical analysis
Technical analysis involves analyzing price charts and market data to try to predict future price movements in the cryptocurrency market. Technical analysis allows you to better understand the real situation in the market; it is used to determine the current trend based on the dynamics of the cryptocurrency exchange rate and predict the direction of further dynamics. Using them, the trader will not find the reason for the change in the asset’s exchange rate but will see the likelihood of an increase or decrease in the exchange rate. Technical analysis can be used as a hint when to enter or exit a position. For beginners, the two best indicators are moving averages and the RSI / relative strength indicator – an indicator that determines the strength and likelihood of a trend change. The indicators are clear and give good signals. But don’t use RSI to time your entry.
Diversify your investments
The rule “don’t put all your eggs in one basket” works always and everywhere. And it especially works in the crypto market, where the fall of one coin can drag down an entire cluster of assets. Therefore, you need to invest in various cryptocurrencies with minimal correlation with each other.
Only invest some of your money in one financial instrument. Buy cryptocurrency, but spread the money to invest in other asset classes as well. Some experts recommend holding 2-3% of the total investment in cryptocurrencies. If this is not possible, make small purchases until you gain more experience and knowledge.
Keep in mind that cryptocurrency trading will not be an easy task for beginners, but if you keep trying, you will succeed.
As with any new venture, starting your cryptocurrency journey may seem daunting at first. But with the right resources and knowledge, you can navigate this complex world and potentially find success. Keep learning, stay informed, and don’t be afraid to ask for help along the way. Who knows, you may just become a successful crypto-investor and pave the way for others to follow in your footsteps.
In Conclusion
Cryptocurrencies offer many opportunities, but also risks. Crypto trading is not easy for beginners, but if you keep trying, and learning you will succeed. If you pay attention to these points, nothing will stand in the way of your adventure in the world of digital assets.
Author:
Williams David, an accomplished financial analyst, and writer, Through meticulous research and insightful analysis, Williams provides readers with a comprehensive roadmap to navigate the intricacies of the cryptocurrency landscape. Williams equips beginners with the knowledge and confidence they need to embark on their cryptocurrency journey with purpose and success.
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