Cryptocurrency prices are highly unpredictable. When there is a lot of uncertainty in the market, there is also a lot of potential for profit and loss. There is a good probability that you will incur losses if you base your financial decisions on what a celebrity is tweeting or what a self-proclaimed expert advises you to do in terms of investing.
Consider the case of TerraUSD and Luna as an example. Over the past few days, the value of a stablecoin known as TerraUSD and its sister currency, Luna, fell by around 80 percent, which shook the cryptocurrency market as a whole, including tokens such as Bitcoin and Ethereum. The value of Terra Luna is rapidly declining. This has created panic among investors, with even the most bullish cryptocurrency investors suddenly showing signs of panic.
In light of this, we have compiled easy guidelines for you to follow to gain a better understanding of the most common blunders that you should try to avoid making.
Stay Calm and Don’t Force Trades
If you are in a hurry to enter a trade position, one of the most significant blunders you may make is to use a market order. Executing a market order not only requires you to pay a premium in terms of trading fees, but it is also typically the worst entry point because the price might rapidly turn against you, resulting in yet another loss. You can be suffering from fear of missing out (FOMO) if you get the impulse to enter a trade when the price moves swiftly.
Traders of cryptocurrencies should keep in mind that the market is open around the clock. Therefore, if you pass up a potential trade situation, you should exercise patience and wait for the next opportunity. Even though it can be disheartening for swing traders and arbitrage traders operating on the daily or weekly time frames, there is always another opportunity, and at the very least, you have kept your cash intact.
Avoid Low Liquidity Cryptos
The simplicity with which a cryptocurrency can be bought and sold is referred to as its liquidity. If a cryptocurrency has low liquidity, you may have difficulty selling it when the time is appropriate. And rather than generating a profit from it, you will end up being forced to keep it.
Risk Management
There is a proverb that goes, “the tiny pig eats a lot, and the huge pig gets eaten,” and this proverb applies to the current state of the cryptocurrency market. Successful leaders don’t wait for the movement to reach its peak before acting. Instead, they hunt for opportunities to make incremental earnings that can eventually add up to a significant sum. The careful management of risk throughout the entire portfolio is an immediate necessity. It is important to limit the amount of money you invest in illiquid markets to a manageable proportion of your total assets. These trades are given a larger tolerance, and as a result, the stop-loss target level is determined to be quite a distance away from the level at which they were bought.
Set a Strategy
Given the fact that trading crypto is a zero-sum game, not all traders can make a profit from their activities. This indicates that for every successful person, there is another unsuccessful person. There will never be a moment in trading that is ideal for buying and selling. It is best to start trading just after you have determined why you are starting and have a solid plan for the company’s future before you begin trading. Even if you are one of the traders that aspire to trade daily, it is best to do nothing at all on some days and wait for the market to move in the direction you anticipate. It will protect you from high-risk areas, but it will put your coins at risk of being stolen. There are days when you can choose to forego trading and yet maintain your current level of profitability.
Don’t Play With Derivatives
The value of financial instruments known as derivatives is derived from the value of some underlying asset, such as interest rates or cryptocurrency prices. Common types of derivatives include futures and options, both of which were developed to mitigate risk and protect investors from the effects of uncertainty. However, if not managed properly, derivatives can lead to a catastrophic loss of capital. Therefore, unless you are quite certain of what you are doing, you shouldn’t mess around with derivatives.
So, how can you manage risk while maintaining profitability? Here’s the answer.
Use Metalpha
Metalpha is a global risk management platform for managing digital assets. Its headquarter is in Singapore. The company was founded in 2021 and is supported by one of the most well-known ASIC miner makers in the world. Metalpha has made it a priority to establish itself as a market leader in the field of crypto asset management. As of 2022, the company boasts an Assets Under Management (AUM) total that is greater than USD 500 million. Risk management and regulatory compliance are seen as necessary prerequisites for business development at Metalpha. Metalpha is a platform for the prediction of crypto risks and intelligence. The company provides corporations, financial institutions, and government organizations with solutions for the identification of crypto threats, risk management, and compliance. Forensic reports can be automatically generated by the solution, which is useful for compliance officers and regulators. In addition to this, it utilizes automated detection algorithms to identify suspicious transaction behavior as well as high-risk accounts.
