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How to Become a Responsible Crypto Trader? Follow these Tips
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Becoming a responsible crypto trader is by no means an easy thing to achieve. It often takes much time, patience, planning, and research. Once you start trading crypto responsibly, nothing is holding you back, and eventually, it becomes part of your routine as one of your top priorities.
Two important qualities tell responsible traders apart from those who are not always careful and thoughtful about their buying and selling decisions: Planning and accountability. With proper planning, you can mitigate many trading risks that you may encounter. This planning is essentially what keeps traders accountable for their actions in the long run.
Why is Planning Important?
Now that we know responsible trading is the key to long-term success let’s understand why planning is essential to becoming a reliable trader. As discussed in one of the previous articles, emotions are the primary driving force behind all the crypto market trends and sentiments. Hence, keeping your emotions under control and having a clear head is of paramount importance. Following are some of the ways you can prevent your emotions from affecting your trades:
- Do your own research.
- Have a diversified crypto portfolio
- Make use of stop-limit orders
- Avoid fear of missing out
Responsible Crypto Trading Tips
Below, we have mentioned some important tips that can help you trade crypto responsibly and avoid being reckless with your buying/selling choices.
#1 Notch-up the security
If you want to be a responsible crypto trader, the first thing you need to do is ensure the safety of your trading account and wallet. There are some ways you can safeguard your trading habits: You can use two-factor authentication (2FA) or a strong password. It is also important that you know how to avoid falling victim to some common cryptocurrency scams. If you are using external, third-party wallets, you should refrain from sharing details such as your private key with others. You can also consider using hardware wallets for maximum security of your funds.
#2 Create a trading plan
Creating a plan and sticking to it is crucial if you want to be a responsible crypto trader. By having a proper trading plan, you essentially prevent your emotions from interfering with your trading. This way, nothing can disrupt your decision-making be it sudden losses, gains, rumors, FUD (fear, uncertainty, and doubt), or anything else. “One needs to have a trading plan” is easier said than done.
So you must be wondering, what goes into creating a crypto trading plan? Let us make things easy for you. First things first, you need to decide what kind of trades you are interested in, in addition to trading conditions and objectives. What determines your limits are your trading style and risk profile.
Therefore, you can create your trading plan with the following things in mind:
- Entry or exit prices for specific trades
- How diversified your crypto portfolio is
- When to stop trading
- Maximum losses you can afford
- What are the assets that you want to trade?
There are some more factors you may want to consider. For example, how much leverage you want to use (if any) or how your crypto asset allocation looks like, etc.
#3 Stop-limit orders
You can’t possibly be in front of your laptop or smartphone screen all the time, and this can be a huge problem when crypto is extremely volatile. Hence, as a responsible trader, it is essential that you safeguard your crypto from market volatility; this is where stop-limit orders come into play.
Stop-limit orders prevent market loss by creating a limit order when the price reaches a preset value called stop price. When the asset reaches the stop price, the trading platform will trigger the limit order. Now, the trading platform will observe if the asset’s price recovers to the preset limit. If this recovery happens, the trading platform will sell your investments. Learn more about different trading order types.
#4 Diversify your crypto portfolio
One of the significant benefits of having a balanced crypto portfolio is diversity. For example, if you keep holding onto Bitcoin, you will be highly prone to extreme ups and downs.
As a responsible trader or investor, you need to ensure your cryptocurrency portfolio also consists of altcoins, especially if you do not wish to experience market ‘mood’ swings triggered by Bitcoin’s extreme volatility at times. Therefore, having a diversified crypto portfolio helps a lot. Learn more about how to manage your crypto portfolio.
#5 Keep FOMO at bay
One of the qualities of a responsible trader is dealing with Fear of Missing Out (FOMO), that anxious feeling among many crypto traders that they may be missing out on some exciting trading or investment opportunities happening elsewhere. These days, we have so much information available at our disposal, which induces fear of missing out, and it essentially manipulates the emotions of crypto traders.
Following are some of the major factors that contribute to fear of missing out among cryptocurrency traders:
- Social Media
- Gossip and rumors
Responsible trading paves the way for some long-term success. But all traders need help and guidance at some point. We will share more exciting trading tips, guides, and educational articles that help traders make the right choices.
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