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10 Golden Rules of Crypto Trading

Crypto trading can be overwhelming, especially if you are new to the scene and don't know the "rules of crypto trading" yet. Like in other investment classes, you need to dip your toes into the water and go deeper as you gain more experience. The good news is that we've got your back! We have compiled ten golden rules to help you along your trading journey.

Let's dive in and explore.

Editor's Note: This post was originally published in November, 2019 and has been updated for freshness, accuracy, and comprehensiveness.

1. Invest in research before investing your money

To increase your chances of success, you must do thorough market research on the cryptocurrencies you are targeting. Since the value of cryptocurrencies keeps fluctuating, observing their market performance trends enables you to target the coins with the highest chances of fetching a profit.

Unfortunately, many people tend to invest in coins purely based on hype. This strategy is a big mistake! There are many hyped-up cryptocurrencies, Initial Coin Offerings, and Ponzi schemes that only result in you losing your money.

Take responsibility for your investment by gaining as much knowledge as possible before buying a coin. You may see the acronym DYOR thrown around for a good reason. DYOR stand for Do Your Own Research. Performing due diligence means thoroughly checking all aspects of a potential financial decision.

2. Only invest as much as you can afford to lose

There's no fun being in this market if you risk your livelihood. Perhaps you have seen some investors who take loans to invest in cryptocurrency. While this has worked for a few, it's not for everyone, and if you are considering this, please talk to a registered financial advisor first.

The crypto market is a double-edged sword. The high volatility can lift you from zero to hero. On the flip side, you can lose your entire investment if you sell during a market crash.

Furthermore, crypto trading is susceptible to other factors such as government regulations and hacks (most likely exchanges as opposed to the currency itself), among others. Never go into debt for cryptocurrency. Only invest as much money as you can "afford" to lose comfortably.

Rules of Crypto Trading

3. Never succumb to FOMO

FOMO is an acronym for "Fear of Missing out". Most traders are overcome by this feeling when they see the price of a particular cryptocurrency surging upward, and since they don't want to miss the opportunity to profit, they jump in. The problem with this approach is that they may buy coins at extremely high prices, which can reduce their chances of gaining profit.

To drive the point home, here is an example. In 2017, the Bitcoin price increased from $3000 in September to about $20000 in December. You could have made over 100x times your original investment. Many investors noticed this opportunity late and bought Bitcoin near its all-time high. When Bitcoin crashed, these traders watched their money burn, and some eventually closed their trades at the bottom, locking in these losses.

Never succumb to FOMO. It will not only lead you to make irrational decisions but also to unnecessary losses.

4. Don't let your emotion get the better part of you

It's easy to get caught up in the excitement of a winning streak or depression due to massive losses in a row. In both cases, the ultimate result is the same – it leads to careless trading based on emotion, which can be costly in the long run.

If you open the trading charts and feel your mind cloudy or full of other things, do not trade—trading when not mentally in the game will only hurt your trading strategy. The market will eat you up and spit you out as a more unfortunate person.

A helpful investment strategy that avoids emotion is dollar-cost averaging. Instead of trying to time the market and buying various amounts of crypto when you think it's a good time, consider setting a regular amount to purchase regardless of market movements.

5. Diversification is the key to success in cryptocurrency trading

In the last few years, many cryptocurrencies have achieved more than 100x gains. One such example is that mentioned before of BTC rising nearly 600% in three months in late 2017! These numbers are just too good to ignore, and any investor can easily be tempted to put all their eggs in one basket.

Putting all your eggs in one basket may just be a recipe for tragedy. By investing in one cryptocurrency, you are taking an unnecessary risk. Currently, the crypto market has over 19,000 different cryptocurrencies, and spreading your investment may give you more chances to win big.

Diversifying your investment portfolio goes a long way in decreasing your risk. Remember to choose negatively correlated assets to optimise your long-term portfolio properly - although this can be difficult in crypto since almost all altcoins follow bitcoin's lead. Learn more about asset correlation here.

6. Know the charts

As an active cryptocurrency trader, chances are you will be trading using various tools and sources for info on the crypto markets. You need to understand the information you learn and analyse every trade you make. While many tools are available to make your trading more straightforward, nothing beats learning how to read and understand the charts.

Charts provide traders with numerically-heavy data in the form of a simple visual. Unfortunately, novice traders flip through timeframes, continually changing their trading tools without precise know-how of what to look for or how to find high-probability trade setups. We encourage you to learn about crypto charts and how to use them. CoinMarketCap (CMC) Alexandria is a fantastic platform that teaches you how to read CMC charts.

7. Never risk more than 5% of your trading capital

Inexperienced traders do not survive in the crypto markets because they do not use "correct" money and risk management principles. If you risk too much capital, you may have a short career in crypto trading.

No one wins every trade. The less than 5% risk rule helps keep the losses at a minimum, especially when a trader is experiencing harsh market conditions, while simultaneously allowing maximum returns.

For instance, if a trader risks just 1% of his current account balance on each trade, he will need to lose 100 trades in a row to wipe his account- and this is rare. Also, if you risk 1%, you could set your profit goal on each successful trade at about 2%. This way, you can achieve substantial returns in the long run.

8. Use a stop-loss

We cannot emphasise the importance of deciding on a stop-loss. Not using a stop-loss technically gives you an excuse to keep a lousy position open (hoping that things will get better).

A reasonable stop-loss helps you cut losses, removes emotion, and eliminates the risk of losing all your trading balance on a single bad trade.

9. Always trade on reliable cryptocurrency platforms

The cryptocurrency platform you choose for your crypto trading ventures is also crucial for your long-term success. Consider platforms with high liquidity and trading volumes and a robust trading engine.

Ensure the platform has robust security features. There's no point in investing a sizeable chunk of your finances, winning big, and then losing all your gains to fraudsters because the platform you used held your coins and disappeared overnight.

10. Take profits at a regular interval

Since the crypto market is highly volatile, it's common to see a coin gaining 20–30% in just a few hours. In such cases, investors may get greedy and hope the rise continues. Unfortunately, they miss out on quick gains by failing to redeem profits at regular intervals.

Whatever your trading goal is, greed never wins. To be successful in the long run, you need to take profits at a regular interval. You never know when the trading asset will retrace and take back all the floating profits you left in the market.

Final tip

Successful crypto trading is not a gamble; it's a strategic game. You need to calculate every move before you execute it. Make a trading plan and follow it.

Now that you know the golden rules of crypto trading, do you have a tip that has worked for you in the past that you wish to share with other traders? Leave us a comment below.



The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.


Last updated: 16/06/2022

5 thoughts on “10 Golden Rules of Crypto Trading”

  1. Thanks for the useful insights. Could you please recommend a good laptop to run my trezor and nano ledger on.

    Nga mihi
    Floyd Rudolph

    • Hey Floyd!

      Thanks for your feedback. I’m pleased to hear you’ve found these tips useful.

      Did you ever manage to check out the Lenovo laptop that Isla recommended back in July? That particular one (Lenovo IdeaPad S130) is still the same price at Harvey Norman and while it is a very basic laptop, it should be more than sufficient for general web browsing and for installing the relevant Trezor and Ledger software 🙂

      Let me know how you get on,

  2. Hi there,

    Thanks for reading our article and for sharing your strong opinion on cryptocurrencies. It sounds like you have done your own due diligence and have settled on the one cryptocurrency you feel best meets your needs – well done!

    Best of luck to you 🙂


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