Cryptocurrency Margin Trading Tips and Tricks
Cryptocurrency margin trading is very risky and some tips and tricks may help you do a better job. We will enumerate a few tips and tricks that you may follow in order to have a better experience while trading cryptocurrencies with leverage. Our cryptocurrency margin trading tricks and tips may be a good read before you get started trading with leverage.
Margin Trading Tips and Tricks: Trade only what you can afford to lose
Although this may sound tough, it’s better to trade money you don’t actually need. Cryptocurrency trading is volatile while cryptocurrency margin trading is quite risky since you can get liquidated. This doesn’t mean you cannot have huge profits while risking only a part of your funds. You should only consider that you can lose everything you traded.
Margin Trading Tips and Tricks: Start with low leverage
When you start trading cryptocurrencies with margin, make sure you start with low leverage. Maybe 3x, 5x would be a good start. When the leverage is higher, the liquidation price is also closer to your entry. Until you have some experience, we recommend you to start with low leverage and also low amounts, until you learn how the system works.
Margin Trading Tips and Tricks: Base your trades on technical analysis
When you trade cryptocurrencies with leverage, you cannot just count on your suppositions and feelings. “I have a feeling that Bitcoin will go up so I will go long.” You may get lucky once or twice but that won’t work forever. There are indicators you can use and trends to follow in order to successfully trade cryptocurrency with leverage. There are also websites, like tradingview.com where you can follow some good technical analysts and you can get an idea which way the currency you want to trade it’s heading to.
Margin Trading Tips and Tricks: Don’t go all in
Maybe you like playing poker but going all in while trading cryptocurrency with margin is a really bad idea. Although technical analysis may work, it doesn’t always work and the market is very volatile. It’s quite a bad idea to risk everything and go all in since you can lose all your funds and you have no chance to recover them unless you deposit more funds. Use only a part of your funds for a trade. This way, in case something goes wrong, you still can recover the loss.
Margin Trading Tips and Tricks: Always set a stop loss
It’s absurd to go blind in a trade only because you feel sure about it. It doesn’t hurt to set a stop loss just in case something goes wrong. If you set a stop loss, you have a guarantee that you won’t be liquidated. If the trade doesn’t go the way you want and your stop loss gets triggered, you will lose only a part of your funds, not everything you traded. Let’s pretend Bitcoin is $8,000, you long it with 10X leverage and your liquidation price is at $6,000. If Bitcoin drops to $6,000, you lose the entire amount you traded. But. if you set a stop loss at $7,800, you lose only a part of your trading funds. The exchanges are showing how much you may lose when you set your stop loss and you can adjust it accordingly. Also, since the market is so volatile, if you set your stop loss too close to the entry price, you may be out of the trade sooner than you thought. If you go long on Bitcoin at $8,000 and you can a stop loss at $7,900, Bitcoin may drop below $7,900 and then go up to $9,000. Unfortunately, you missed the opportunity to have some profit since your trade was closed when the price reached your stop loss price.
Margin Trading Tips and Tricks: Don’t chase hypes and don’t catch falling knives
If you see that the cryptocurrency you want to trade it’s going fast up, don’t go in because the way it goes up, it can also go down. Maybe faster. The same thing when it goes down. It’s hard to know where it stops and you may end up going much lower that you expected. Just be patient and wait until it settles down. Then, check the chart and then take the trade.
Margin Trading Tips and Tricks: Start cryptocurrency margin trading with Bitcoin
You may wonder why it’s important to start trading with Bitcoin and not any other coin. Until you will become familiar with margin trading, you should start trading Bitcoin because you only have to check one chart. If you want to trade any other coin, like ETH, EOS, XRP,… you have to check 3 charts. We will take ETH as an example. You can trade cryptocurrencies with leverage only using USD or EURO as a trading pair. For this reason, if you want to properly trade ETH, you have to check the ETH/USD chart, the ETH/BTC chart and also the BTC/USD chart. It’s not enough to check only the ETH/USD chart. Although the chart may look good, the BTC/USD chart may look bad and usually, if BTC goes down, the other coins also go down.
Margin Trading Tips and Tricks: Count also on FA (Fundamental Analysis)
Yes! Read the news! A piece of good news can ignore everything you know about technical analysis. Some really good news about a partnership or about the project development can turn a chart from a downtrend to an uptrend. It’s not 100% a fast but most of the times, good news count. We have seen coins going up 200% only because the project owners have announced a website redesign and we have seen coins going up 20% after the owners announced an important partnership. TA (Technical Analysis) and FA (Fundamental Analysis) may do a great job together.
Margin Trading Tips and Tricks: Follow your trading plan
Before you start a trade, make a plan and follow it. Cryptocurrency margin trading takes discipline and once you trade chaotically, you risk to lose all your funds. Don’t panic when you see movements against your beliefs. This can happen all the time but if you stick to your plan, you may be successful. As long as you have set a stop loss, don’t panic if your trade doesn’t go the way you want. Be patient because it may reverse.
Margin Trading Tips and Tricks: Better long than short
Although shorting can also bring profit, longing it’s much better. By longing, it means you say the price will go higher and by shorting it means you say the price will go down. Let’s say you trade 1 Bitcoin when 1 Bitcoin worth is $8,000 and you go long 10x with a take profit set at $8,800, so 10% up. Since your leverage is 10x, you actually trade 10 Bitcoin, 1 is yours and 9 from the exchange. If the price goes up 10% as expected, you get 100%. This means 1 Bitcoin profit. But, 1 Bitcoin worth now $8,800. While your trade entry was $8,000, you end up with 2 Bitcoin, each $8,800 worth, so $17,600.
If you short 1 Bitcoin with a 10% target, Bitcoin should drop to $7,200. Once the target reached, you will have 2 Bitcoin, each worth $7,200. So, you entered your trade with $8.000 and you end up with $14,400. This doesn’t mean it’s bad but, as you can see, for this specific trade, you would have earned around 20% more if you successfully have entered a long trade.
$8,000 trade entry
10% target 10x long = $17,600
10% target 10x short = $14,400