2. Intraday cryptocurrency trading (day trading)
Most cryptoinvestors are considering a day trading option; many have already tried, someone succeeded, someone did not.
First, let’s start with a lifestyle. Most likely, most of our readers go to work. Therefore, if you are going to engage in day trading, you will have to trade either during work, hiding in the toilet or under the table, or in the evenings and on weekends. Catching up on bidding at work, you will neglect their duties, and your efficiency will decrease. A career will suffer, and trading is likely to be unsuccessful, since you will not be able to pay enough attention to both areas at the same time. If, however, to conduct trading in the evenings and on weekends, you have to neglect the family or health and leisure.
Doing day trading is extremely difficult; you need to follow the market and news, follow trends and use technical analysis tools. But in this case, the rapid changes in the market can easily “knock out” all your positions by stop-loss.
If you consider yourself experienced enough to quit your job and devote all the time to trading on the crypto market, you are at great risk, unless you have a serious financial airbag. Even if you are lucky and you have enough money to not work, remember that you are going to enter the supercomplex market for day trading. For example, one of my acquaintance trader closed all positions on stop-loss due to the news of China. But if he was not a day trader and held long positions open longer, he would have a chance to close them with almost no losses. Every stop loss meant losses for him, which he now needed to play.
The problem of day trading is that markets often behave irrationally, events occur that have no rational explanation, and moreover you have to contend with your own greed and fear.
The graph below clearly shows what traders have to go through almost every day in certain periods. We never know how the market will behave in the short term, so greed and fear will try to force us to buy and sell at the most inopportune moment.
Do not deal with day trading cryptocurrency. No need to add yourself extra stress, trying to scalp on coins and worry about the huge losses in the market reversal. Although it is a very volatile market, it moves according to predictable scenarios.
As already mentioned, investing in cryptoactive assets is speculative. We speculate that in the future digital currencies will become a means of payment, and services based on tokens will support systems and technologies that will revolutionize the market. If this is confirmed, then the income from investments will grow. Therefore, you do not need day trading. You need to find technologies that you are confident in, find a good entry point to cryptographic markets and keep investments, despite the ups and downs of the market.
3. Margin trading
Margin trading is when you borrow money to invest using leverage. For example, if you use a leverage of 1:10, then in the case of asset growth, for every 1 dollar increase you will receive 10 dollars of profit, and, accordingly, if you decrease the price for every one dollar, you lose 10 dollars.
Margin trading is a violation of the golden rule: do not invest more than you can afford to lose. Because if you had money, you would have contributed your own money.
In margin trading, greed and the desire to take a loan to invest prevail, which means accepting the risk of a margin call. Margin Call is a nightmare for an investor. Definition: “Margin call is the broker’s requirement for the client to make additional collateral to his account in order to maintain the account balance at a sufficient level. Margin call occurs when a client’s account reaches the minimum mark calculated by each broker according to its own rules”.
An investor receives a margin call from a broker if one or several assets purchased by him at the expense of leverage assets fall in price to a certain level. An investor can either deposit additional funds into the account, or sell several assets on unfavorable conditions.
If additional funds are not received, the position is closed automatically, and the investor loses his initial investment. We already know that crypto markets are extremely volatile and carry great risks. By using margin trading, you risk your money. In the case of a margin call, if you are unable to replenish your account, you will lose your investments if the cryptocurrency price drops below a certain level.
If you do not use margin trading and simply trade in assets at your own expense, without leverage, then no matter how the market behaves, you will not lose the acquired assets.
Margin trading is only suitable for very experienced traders, but even for them the risk remains very high. As a person who has experience of margin call and who has lost a lot of money on this, I swear to deal with margin trading.
4. Short positions (selling with leverage) by cryptoactive assets
Shorting (opening short positions) is a game to lower the price of an asset and is a useful intra-market tool for assessing investor sentiment. The main problem with shorting cryptocurrency is that you are trying to short in a highly volatile market, and in an uptrend, you are also trading against the market.
Another problem with opening shorts in a bull market is that you are turning into a day trader, since you need to carefully monitor prices. And you already know that day trading is not the best idea for cryptographic markets.
Dictionary definition:
A short sale is a sale by an investor of securities that he does not own, but which he must once buy in order to repay a debt. A short sale is used to make a profit from the expected fall in prices of certain securities or as a hedge against risks in a long position. Since a short sale is fraught with great risks, it is only suitable for experienced traders.
As in margin trading, here you do not own an asset, and the worst thing is that theoretically there is no ceiling for an increase in the price of an asset. If you have an asset falling in value, then it cannot fall by more than 100%. Whereas in the case of growth, an asset can double, triple, grow 10 times in value, and as it grows, you lose money. Try to imagine opening a short position on Ethereum before a jump in its price by 4000%.
Short sales are only suitable for very experienced traders. Beginners risk losing everything in this way.
5. Do not care about safety.
This last point is not so important for traditional stock investors, but on the crypto market it is of paramount importance. Due to the very qualities that make cryptocurrency easy to trade, they are easy to steal from users.
Hackers from different countries hack the exchanges and personal computers of users for this purpose. You need to take security very seriously: a single mistake can cost you big losses. Read the heartbreaking stories of people who did not take care of two-factor authentication on the stock exchange, clicked on a link from spam emails or went to a phishing site and revealed their confidential data. For hackers you are a target; they want to steal your cryptocurrency. Constantly monitor compliance with security measures, as well as keep your assets in cold wallets such as Ledger Wallet or Trezor.
Conclusion
Do not consider cryptocurrency as a mean of rapid enrichment. This is a high risk market with high potential. Make sure that it is suitable for you, and if you have become an investor, then do not rush and do not follow your own greed.
Source: chby.io
