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Cryptocurrency trading is one of the complex arts to learn as it runs 24-hours a day, seven days a week unlike traditional markets that close every evening and weekend.

This causes undeniable levels of volatility as prices can swing dramatically during North American market hours before going in a completely different direction during the Asian trading session.

When examining whether it is worth getting involved in cryptocurrency trading it is very important to understand the risks.

First of all, it’s worth noting that 70% of traders lose money every quarter, and 100% of these traders will lose their entire bankroll within one year.

Four key areas

The key to trading successfully is a combination of risk management and emotional control as well as technical and fundamental analysis.

Managing risk and preserving capital is the most important. A trader can be the best analyst in the world, but if they don’t employ a strict risk strategy they will likely lose all of their capital during one trade.

A rule of thumb is to never risk more than one per cent of a trading portfolio on one specific trade. This means that a trader can lose five – even 10 – trades consecutively and still be profitable over the course of a year as long as the rationale behind the trade is clear.

The second most vital part of being a succesful trader is controlling emotions. If a trader begins to feel euphoric after a winning trade, or desolate after a losing trade, it is important that they take some time off to re-evaluate. It is crucial that a trader does not execute a trade based on emotion, and that it is only placed on fundamental or technical analysis.

Succesful traders are also known to journal every one of their trades, this means that they can review and adjust a specific strategy at the end of each day depending on results.

Analysis

Technical analysis involves looking at a price chart in an attempt to establish trend and direction. A chart is effectively a representation of human emotion and psychology and, as a result, charting patterns are often replicated across time-frames and various markets.

Traders aim to buy an asset, also known as “going long”, at a level of support, while selling an assets or “going short” at a level of resistance. This means that over a course of time they are minimising risk by giving themselves the best possible entry.

Fundamental analysis is examining real-time news and macro economic factors on a global scale like inflation, company valuations in comparison to earnings and any shifts in the geo-political world.

It is imperative that a trader doesn’t overlook any of these four key points, if there is a macro event happening that may contradict a trader’s technical analysis, they should simply not make the trade.

Conclusion

Trading cryptocurrency is extremely high risk. All traders are advised to trade using “paper money” on a testnet before trading any kind of real capital. This allows them to make mistakes and fine-tune their emotional state without putting real money at risk.

Feel free to read Coin Rivet’s trading guides and technical analysis for a deeper dive into trading strategies.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.