Trade Crypto Like a Pro – Avoid Costly Mistakes
Braden Gardiner and Davin Clarke show how they look for trading opportunities.
Cryptocurrencies have emerged over the last ten years and become a common investment for many traders. There are many to choose from but some of the more well known and commonly traded as CFDs are Bitcoin, Ethereum, Litecoin and Ripple.
What are Cryptocurrencies?
Cryptocurrencies, which are also known as virtual currencies or digital currencies, are a form of electronic money. In their pure state they are designed to work as a medium of exchange. A cryptocurrency unit, such as a bitcoin or ether, is a digital token in fixed amounts. This is created from code using an encrypted string of data blocks known as a blockchain. Cryptocurrencies also have other uses along with payment, such as running programs or executing contracts. The virtual currencies can be bought or sold on exchanges using conventional money. Another option is to simply trade on an online trading platform like any other CFD product to take advantage of price fluctuations.
How to trade Cryptos and avoid costly mistakes
It is worth noting that cryptocurrencies can be very volatile, but with the large fluctuations comes opportunity for gains. Both professional and private traders will need to be careful when trading to make sure to avoid any costly mistakes. Some key factors to plan for: Some key factors to plan for:
- Make sure you know what may be moving the market and watching for any potential market moving news.
- Do not over leverage your account thinking ‘this is the big one’. You do not want to take on more risk than you are comfortable with or that your account can handle. Overleveraging can stop you from taking other opportunities in the market, but more importantly, can easily wipe out your account.
- Keep your trading costs low. Find a broker with the lowest buy/sell spread and the lowest or 0 commission, so that potential profit is not eroded.
- Don’t get hung up if you have a loss trading as it is just a part of trading but make sure it is not excessive. Use predefined money management skills when trading to minimise losses while aiming to maximise gains.
Trade Risk – Assessing Probability
Your trade risk is the risk that your trade will be unsuccessful and you will incur a loss as a result. Traders can fairly easily calculate their risk (stop loss) as a ratio to their profit target – their risk/reward ratio.
For a trade with a 20 point stop and an 80 point profit target, the calculation would result in a risk/reward ratio of 4:1. That is, you are planning to make a profit of 4 times the amount you are prepared to risk on the trade.
Managing your trade risk requires you to calculate your risk/reward ratio for each potential trade. Determine if, in fact, your risk is worth the potential reward. This risk/reward ratio will impact on your trading statistics and ultimately the trading profit. Managing your trade risk also requires you to develop a process for assessing the probability that the trade you wish to enter will be a profitable one.
Determine a number of risk factors that you will assess for each trade entry you identify. You may require that you will only enter the trade if a limited number of risk factors are present, or you may tighten your stops if you assess the risk to be higher, but the trade still valid.
Risk factors that you may consider include:
- The size of the consolidation period before a trend starts
- The number of sequences completed in a trend
- The volatility of the price compared to recent volatility
- The placement of the moving average
Let’s take a look at one of our recent (TradeSetup) alerts on Ethereum
Recently, crypto bulls have been out in force giving rise to some great trading opportunities if the above mentioned key points are implemented.
Watching the crypto market, we were alerted to a sudden bitcoin move up through what we perceived as a key level. News on what started the move is still a little unclear but we could see that the bulls were starting to flood back into the action. The price trend had changed from predominately down to a gradual movement higher over a 5 month period. We expected the move to flow over to other virtual currencies and liked what we saw on Ethereum.
The chart below is a snapshot at how we planned out the trade to take early advantage of a sharp appreciation in price while knowing our risk and potential areas where we may run in to problems.
Once the trade alert, it is just a matter of watching and waiting to see if the action plays out to plan. The key for ensuring a positive outcome is correct trade management. The market does not always go in the right direction straight away so patience is key. As it worked out the move paid off nicely and risk was managed accordingly.
Trading Cryptocurrencies CFDs with TradeDirect365
- ASIC-Regulated: TradeDirect365 is a trading name of Finsa Pty Limited (ACN 158 065 635 and AFSL No. 422661).
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Braden Gardiner and Davin Clarke produced this article on how they plan and structure a trade.
We have produced this article for general information and educational purposes only. It is not (and cannot be construed or relied upon as) personal advice. This article is not an offer to buy/sell/subscribe to any of the financial products mentioned herein. No investment objectives, financial circumstances or needs of any individual have been taken into consideration in the preparation or delivery of the Content.
Financial products are complex, entail risk of loss, may rise and fall, and are impacted by a range of market and economic factors, and you should always obtain professional advice to ensure trading or investing in such products is suitable for your circumstances, and ensure you obtain, read and understand any applicable offer document.
TradeDirect365 is a trading name of Finsa Pty Limited (ACN 158 065 635 and AFSL No. 422661)