With Bitcoin racing from 1000 dollars to 18000 dollars in less than 12 months, it is understandable that investing in Bitcoin is probably the most lucrative venture right now. Almost every day, Bitcoin is breaking barriers and making a new record, and the news of someone becoming a Bitcoin millionaire is hitting the news. Though all of this may sound great, many are often not aware of the risks associated with Bitcoin trading that can completely wipe out their entire portfolio in a matter of few hours.
Here’s a list of 8 risks that every Bitcoin holder should avoid to stay in the game and reap profits for a long time.
1. Risk of Entering Trade Without a Clear Strategy
In order to implement an effective strategy, and achieve success, you will have to combine both technical and fundamental analysis. Based on your analysis, once you break down the possibilities and figure out what works best, you can enter Bitcoin trading with a pre-calculated position. This will help you to clearly determine how much risk you want to take, and when to book profits.
2. Risk of Not Evaluating Market Conditions
It is important for every new trader to understand that different types of trades are suitable for different market conditions. For instance, swing trading is likely to produce desirable results when the trends are strong, however, on the other hand, automated scalping is ideal when the conditions are solid and stable. Therefore, not being able to identify the right market conditions would make you commit trading blunders that can lead to disasters.
3. Risk of Using Excessive Leverage
It is a natural tendency to use more margin limits, as it beefs up the trading volumes and maximizes profits when the market shoots up. While this is true, one has to also realize that leveraging your trades far too much can result in maximum losses as well, particularly during scenarios like forced liquidation. There are some Bitcoin exchange platforms that offer margins as high as 100x, but in that case, even a 1 percent swing against you can destroy your entire portfolio. A sane and practical approach for new traders would be to use 3x leverage, as it will enable you to boost your gains, and at the same time, provide you the buffer zone to get out of a bad trade.
4. Risk of Spending Your Entire Money in One Go
Another very common mistake that new traders make is putting their entire capital in one go. Please remember, the golden rule of successful trading is to use 40 to 50 percent of your funds in a good trade, and then wait to see how things work. That way, you will have enough money to average your position by purchasing more at dips, when the price of a coin drops. Though this approach lowers your profit margins if the uptrend continues, but still, it is a safer option that saves you from losing everything on a single trade.
5. Risk of Not Having an Exit Strategy
Map out your trade strategy ahead of time by identifying the resistance levels and key support on the charts. Carefully assess the risk-to-reward ratio and set realistic targets for taking profits. Also, specify a stop loss to protect yourself in case the market slips into a downward mode. Setting up an exit strategy enables you to book profits and stop losses at the right time.
6. Risk of Falling into the Emotional Trap of Revenge Trading
The market is unforgiving, and it doesn’t care much about whether you win or lose. One of the common mistakes that beginners make is to chase a bad trade with a mindset like the market “owes them” because that particular bad trade has made them lose money. This is popularly known as revenge trading, and this doesn’t benefit a trader in any way. Instead of chasing a bad trade, you should exit it, and start fresh. This is why having a solid exit strategy helps.
7. Risk of Not Keeping Yourself Up-to-Date
Following charts and market analysis is not enough if you want to succeed in Bitcoin trading. You will also have to follow the trends and keep yourself up-to-date with the latest crypto news and developments. Since cryptocurrency is a highly volatile and speculative market, staying updated is all-important for any Bitcoin trader.
8. Risk of Selecting a Wrong Exchange
Last but not the least, trading with the wrong exchange can expose you to risks and in general, leave you with unpleasant trading experiences. As the cryptocurrency market continues to grow exponentially, the number of currency exchange platforms are also matching the pace and increasing at almost the same rate. Though this is providing traders with a variety of options, the problem lies in choosing the right exchange. Unfortunately, not all exchanges are like Belfrics, which is a reputed, well-respected, Bitcoin exchange platform, trusted by millions across the globe.
As opposed to many other platforms that give nightmares to their customers by crashing at crucial times, or even worse, not executing orders or honouring withdrawal requests, Belfrics offers its customers seamless experience with the best-in-class Bitcoin exchange platform that integrates top-of-the-line features to make trading and storing of Bitcoins fast, secure, and simple. Try out the state-of-the-art BT18 Bitcoin exchange platform from Belfrics today, to know the difference.
With these risk management strategies, you can experience relatively better outcomes and keep your anxieties and frustrations at bay while trading in Bitcoins.
For safe and secure Bitcoin trading, register with Belfrics today!