If you plan on investing in altcoins you should not only have strict rules - but you need to try and follow them closely. Rules for investors are a handy tool. Those who don’t have rules often get caught up in a trade and don’t what move to make. This is no different when trading altcoins than it is for every other kind of traditional investment.
If you have a rule where you sell half your coins when they reach a certain value, you have just protected yourself from a possible reversal. If you adhere to a rule that says you’ll sell when a coin loses 20% of its value, you’ll never be completely wiped out when the inevitable losses hit.
Don’t kid yourself: no matter how good at trading altcoins you may think you are, it’s extremely likely you’ll experience times when events spiral out of control. There are always third parties at work who impact the price of coins. Rules help you deal with the turmoil that’s always present in the altcoin market.
A Rule To Exit With Profit
Investors have always struggled with the seemingly-simple concept of taking profit. When the price of a stock (or in our example a cryptocoin) is up sharply, it’s easy to over-estimate your abilities and for you to be extremely bullish. Savvy traders know all about this common trap. They always have a target price in mind before they enter the trade. If their coin hits that target, they exit the trade quickly and take profits.
There will be times when following a rule like this ‘costs‘ you money because the price goes much higher. Overall, though, you’re going to be ahead of the game because there won’t be any occasions when you stubbornly hold on for way too long. There’s nothing more demoralizing than coughing up gains you could have easily taken. Worse, if you let your ego remain in control, you might actually ride that loser down until you’re completely tapped out.
A Rule To Exit Before Losing Big
Sometimes you enter a trade to discover you’re completely wrong! Uh oh, what now? Many people will sit there like a deer in headlights hoping that a price increase will save them. Savvy traders won’t stick around. If the price went down after they enter and they have a rule about ‘stopping losses‘ they will follow it! A trader HAS to protect their investment money or it’s game over. If the market tells them they’re wrong they take the advice and exit. Amateurs tend to sit around waiting until the market somehow proves them right. If they do this for too long, they become the proverbial bag-holder who has put their hearts above their heads one too many times.
“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”
- Sun Tzu
Sun Tzu could scarcely have imagined altcoin trading when he wrote his famous rules about war, but this one certainly applies. Successful traders have already plotted a winning course in their minds before they ever enter a trade. Losing traders ‘jump in‘ and hope to figure out an exit strategy after the trade is already under way.
Resist the urge to ‘jump in‘ without having a plan. Make sure you have a target price to sell at and a plan for exiting regardless of whether the trade turns negative or positive. This won’t offer you complete protection against the ups and downs of altcoins, but it’s a start.
Altcoin trading is a dangerous game to play. Many of the rules you may have invented for trading securities won’t apply. Create new ones specifically for trading alternative cryptocurrencies and adjust them as necessary. You will need to stay alert and actively monitor your trades. There’s no way around it.
Thanks for stopping by and reading. What rules do YOU follow, if any? Let us know below.