If you are a novice leverage trader or wanting to be one, you would have heard this a million times. Crypto leverage is a risky thing to do. It is very risky and the luxury you have to make mistakes are very minimal especially when you are margin trading above 20x. Hence doing risk management for all the trades you take is very important. Having said that, here are the 10 steps you need to follow to master Crypto leverage trading.
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Understanding the risks of Leverage trading Cryptos, starting off small is the best way to start your journey. Considering the money that you are investing in a margin trade is not yours anymore is the best way as you are not sure how your trades are going to go. Do not rush into it full on. Have a small and clear portfolio. Learn to walk before you plan to run.
Have a plan
It is very important to have a game plan before trading, Margin trading in particular as there is a great risk factor. Spending most of your time learning the rules of the game can give you a great lead over just jumping in the sea. Once you have a clear understanding of the rules that you learnt, you can build strategies around them. Strategy is that one thing that differentiates professional trading from gambling.
Trade the Spot market before leverage trading Cryptos
Spot markets consist of simple buying and selling of any asset. The charts you see there are much more stable than that of any Cryptocurrency charts. Every new trader should be constantly profitable in the spot markets before even considering leveraged trading. Using leverage will increase your gains and losses. It can be especially good for day trading but just make sure you know what you’re doing.
Take profit and stop losses
It is a good practice to take out profits along the way on the winning trades. If you are trading on leverage measuring risk to reward then you will likely have a hard stop and take profits. Multi-week swing trading on spot can use both Take Profit and Stop Loss. Stop orders can also be used against you.
There are a lot of instances where “stop order hunting” with big institutions pushing the price past support or resistance. When this happens, your order may not execute at the trigger price but close you out at the worst possible price where you cannot make more profits. When using crypto leverage this is certainly important.
Master a one kick trick
Having a plan before executing a margin trade is very important and mastering one effective strategy that can produce consistent results can serve you better than just knowing hundred strategies. You don’t need anything intellectual, out of this world technique to make you money, just one simple tactic that worked for you before and which you are comfortable with is more than enough. Find your sweet spot in the market, choose your favorite cryptocurrency and stick to your plan. If you don’t have a plan then you shouldn’t be on the battlefield. Traders who tend to execute random orders without a plan usually lose their money especially with respect to margin trading.
Trade Quality over Quantity
One common mistake that Crypto leverage traders do is their urge to always be in a trade. Chasing the market during rough conditions is not at all a good decision to make in margin trading. You should be patient enough to wait for trades that have a higher probability of winning over losing the trade.
You also always need to have an exit strategy to manage risk. Unless you are running an algorithm which has the ability to scalp a flat market, stay away from stable price action. When the markets are inefficient the best thing that you can do is to be patient and wait.
Trade in fiat when prices are high
It is a general practice that most of the altcoins are traded using Bitcoins as in most of the exchanges altcoins are paired with BTC. Trading altcoins is a great way to accumulate a lot of BTC. But when you are leverage trading during crypto bear trends it is often best to use USD or other fiat currencies as your ammunition. Using a depreciating asset as your collateral can increase your losses.
Manage Risk when using Crypto Leverage
The odds of you winning a trade is not guaranteed at all even if you have the most effective trading strategy with the best market conditions especially when you are trading Cryptos on leverage . There are no absolutes what so ever in trading and nothing is ever guaranteed. Hence Risk Management is very important to mitigate the loss. Technical analysis is an effective way to read the price action and frame your strategy. Reducing counterparty risk, Position size, setting stops or hedge your position and going easy on leverage are some of the steps you can take to reduce the risk while you leverage trade Cryptos.
Lock in gains and diversify
The moment you realize that you are making life changing amounts of money, it is better to cash in some of your coins to lock in earnings. That means removing money out of the crypto markets completely and diversifying it elsewhere. If you manage to do this perfectly, then you have already won the game.
Take Breaks and learn
Trading is addictive, especially when you see some huge profits by leverage trading Cryptos. Exercise and meditate. Spending time with your family and friends can relax you more.
You need that calmness when you are seeing price action charts all day. Spend some time to research on the developments that are happening. Every day there are some or the other new innovations in the Crypto space. Understand what they as learning and acquiring knowledge is a constant process. These are just some of the best crypto leverage rules you can follow.