Trading with Altcoins requires much more care. Mistakes in trading with Bitcoins and Altcoins can make you lose your valuable investment at a very short time. No doubt that any kind of investment requires all attention, dedication and great focus that helps you avoid mistakes. Secondly, Bitcoin and Altcoin trading are not cut for everyone.
Here are some tips that will help you know if it will work for you and how to do it successfully.
1. What is your reason for entering the business?
Bitcoin and Altcoin trading is a zero-sum game and not everyone will make gains from it. Someone will have to lose if someone else gains.
People (big fish) who place huge blocks of hundreds of Bitcoins on the order book actually make a kill when starters (little fish) and inexperienced guys make mistakes. Therefore, rushing into the business without a strategy and goal is the first mistake you will ever do as a trader of Altcoins.
You need to work with a profit target level and a stop-loss level. The first helps you go for the profits, strategically, while the latter means that there is a level of loss above which the trade should close. Another mistake when starting the business is choosing the stop-loss and profit target level incorrectly.
Do not let your ego take control such that you get so optimistic of getting huge profits without even making a single plan and clever calculation. Crypto trades are riskier than stock exchange where daily movements can be of 2-3% in value and a coin can dump by as much as 80 % in just a few hours.
2. Deal with the fear of missing out (FOMO):
Many people are tempted to hold coins when the news of high gains goes up. In other words, they fear to miss out holding the coin for the lure of the huge profits not knowing that coin value or prices may rise but sometimes buying it is not an advisable move if there is a likelihood of it falling in value in future.
For instance, although the prices are currently high, most of the coin holders are the "little fish" who are tempted to buy for the lure of the huge profits: the prices could fall later, meaning the "big fish" are just waiting to buy the coins at a lower price from the little fish.
3. Know a few things about risk management:
Wise traders in Altcoin and Bitcoin markets do not go for peaks of movements but do watch out for the small profits that will finally accumulate into a huge profit.
Know how to manage risk across your portfolio. You should only have a small percentage of it in non-liquid market because this market is associated with high risks. Choose stop and target levels far from the buying level for non-liquid markets.
Again, rules of risk management also dictate that you should never invest too much in a single Altcoin project, for instance during an ICO.
4. Understand volatility:
Volatility of Altcoins depends on that of Bitcoin. The two have an inverse type of relationship in their value, meaning the Bitcoin value of Altcoin reduces when the value of Bitcoin goes up and vice versa. It is recommended to have close targets or stop trading if Bitcoin is volatile since you do not know what lies ahead.
5. Altcoins lose value over time:
This means you should be careful when choosing Altcoins and holding them. Some Altcoins are recommended for long term while others are for the short term. For instance, if an Altcoin has a higher daily trading volume and there is a widespread community behind it, and it is undergoing continuous development, it is possible that it will be around for a long time.
Examples of Altcoins that have traded the most daily volume are Ethereum ETH, Monero XMR, Factom FCT and DASH. Identify the low and stable periods using the coin's chart. That time is the consolidation time by the whales or the big fish, and the coins are likely to sell at a higher value later.
6. Should you participate in an ICO?
Crowd-sales are good because the ICO participants expect to gain when the value of the coin increases later or when the project succeeds. However, not all projects are worthy chasing. Some projects have disappeared with the money.
If you are unaware of the seriousness of the project and the team behind it, do not go ahead to invest in it. Do not go for projects in which the team has no experience, where the team is hiding behind nicknames, or the team is unpopular. Sign up on the Bitcointalk and check if the company is listed there. Check how the members respond to the technical questions.
Check the ideas behind the project, how much money the company has gotten in the initial ICO stage (a project that gets too little will probably not go far because there isn't too much to fund the project and if it raised too much, there probably isn't any other investors left to buy the coins on exchanges).
7. Other important things to note down:
Instead of buying from the order book (taker), consider posting the command (maker) because multiple trade actions mean more fees. For instance, a maker will save 0.1% in Poloniex exchange.
A warning should go to those who are under pressure to make a trading decision: instead of making abrupt and unplanned decisions, make a decision only when you know how to get out of the situation in which you are entering. If under pressure, skip the current opportunity and wait for the next.
Remember to always set goals by putting sell orders. Not only will you pay lesser fees on the maker side, but a whale may also increase the value of the coin to catch your command. That said, you need to place very low buy orders in case the coin dumps. Ensure that your buy order is lower than the current market price.
Also, do not rush to buy when the major sites publish good articles about a trade or then market. In fact, that should be the time to quit the market. Instead, buy when there are rumors of improvement of the market.
Gaining knowledge from professionals, forums, blogs and other traders about trading is something you should consider all the time.
Finally, the secret of Altcoin trading is not ensuring that you never made a loss at any one time. Instead, it is ensuring that your total profits are higher than the total losses at any given moment. Remember Murphy's Law? "Whatever can go wrong, will go wrong," meaning that things will go wrong at any given moment if you give them a chance.