5 Ways to Keep Emotions in Check When Buying Cryptocurrencies
Buying cryptocurrencies is fast-paced and allows for different kinds of trades and purchases. Smaller trades and purchases, for instance, can build momentum quickly into larger spending volumes.
Buying or trading can be lots of fun and a potentially rewarding investment, but in order to mitigate risk, take these tips into account:
1) Have a plan beforehand
First of all, consider why you are going to invest in, or buy, cryptocurrencies.
If you’re making a plan and want to include cryptocurrency, ask yourself questions like these:
- How does this fit with your personal finances and your current investment portfolio, if you have one?
- Can you afford to lose this money?
- Are you aware of the risks and the volatility of the cryptocurrency markets?
- How will you use your cryptocurrencies: buy and keep, or trade?
Critically, do your background research into the cryptocurrencies you might buy and their movement, underlying technology, and blockchain whitepaper. While good technology and a strong community is no guarantee of success, it helps you better understand what you’re buying.
2) Choose your trading platform or exchange
Choosing the right platform is all about figuring out which one will help you reach your goals based on your plan.
Some factors to consider
Consider your location and that of the platform you will use. Using an exchange in your own country might help with meeting legal or taxation requirements. It may also be easier to make deposits or withdrawals in your home fiat currency and fit better with your conventional banking methods.
Coins and trading pairs available
Take a detailed looked at the exchange you want to use. What coins are available? What trading pairs? Can you buy cryptocurrencies with a fiat currency deposit or only with another cryptocurrency like Bitcoin?
If you are looking for a long term investment, an exchange with basic pairings that match your needs will be suitable. If you are looking to speculate on the market with short term buying and selling, on the other hand, you may need an exchange with advanced trading features.
If the platform you choose doesn’t allow fiat purchases or withdrawals, consider that you will need a balance of one of the more popular coins like Bitcoin or Ethereum. The value of your balance will fluctuate due to the market volatility of cryptocurrencies and in this way change more than a balance of fiat currency like the dollar.
Platform security is critical. You will be dealing with inherent market risk – you don’t need to deal with platform risks, too.
Make sure the platform you use does everything possible to protect itself, and your funds, from hacks and attacks. Search the web, check for recent news associated with the platform and any reported risks.
What kind of login procedure does the site have? The stricter it is, the more it may indicate an exchange that works hard on its security. Most exchanges will also detail how they protect against hacks and security breaches and what you can do to protect yourself when using the platform.
In particular, things like holding coins in cold storage and offering more secure login methods is important. Another part of security is the availability of the exchange’s support team – an email you can contact and an active social media presence – which helps you get in touch if anything does go wrong or you need help.
3) Know your limit, play within it
Regardless of any spend you make – from houses to vacations to cryptocurrencies – you have to know what you are able to spend and then stay within that limit.
Decide how much you can afford to spend, or speculate, based on your portfolio size and your overall goals with digital currencies. It’s also not 1:1 – people with large portfolios should not necessarily spend more on cryptocurrencies (and vice versa). How much you can and want to spend all depends on your plan (step 1).
In general, though, investing in cryptocurrencies carries enough risk that you should only be spending what you can afford to lose entirely..
Set your limit, stick to it. If you are really serious about increasing your limit, go back to your plan and identify if spending more is a good idea based on your portfolio and how you plan to use cryptocurrencies in that portfolio.
4) Set limit orders
Limit orders are what will protect you from losses if cryptocurrency prices move quickly.
A limit order will allow you to set the lowest limit to which you will to allow your investment, or cryptocurrency price, to fall to before you sell and get out of the investment. They also help you to lock in gains.
So say you buy a token or coin at $10 dollars per coin, if you expect the value to rise quickly you could set a limit order to $9.99. If the price falls dramatically, the platform will automatically sell your balance at $9.99. If the value of the coin rises to $15 dollars per coin, you can protect your gain by changing the limit order to $14. By doing this you protect your gain, but also allow for a little fluctuation. Cryptocurrency prices go up as quickly as they can go down.
Most exchanges will have a simple limit order system and a guide to how to set limit orders and manage them. Before you start to buy cryptocurrencies, test out the limit order system.
Note that limit orders are not foolproof, a large one second drop in market prices might lead to your limit order being filled at the best available price, but not the price you initially chose. It could be below the limit order but close enough to satisfy the order. Make sure you understand the rules associated with limit orders. It’s not a perfect science but will allow you to limit losses, potentially secure gains, and control your portfolio better.
5) Don’t obsess over market charts
It is the inherent nature of cryptocurrencies, and some of the attraction, that prices fluctuate so much. Values can swing by significant percentages in seconds and minutes. Watching market charts could shoot up your blood pressure and trigger an emotional response.
While market charts are a valuable tool for analysis and tracking, staring at one day-in, day-out, may not be the best way to keep your emotions (and stress levels) in check when buying cryptocurrencies.
Buying cryptocurrencies doesn’t need to be stressful. It can be a fun experience and an interesting way to get more involved in the new financial world. But, along with opportunity comes risk and high emotions – the steps here should help you keep your cool and buy, or trade, cryptocurrencies without losing your head.
Buy Bitcoin, Ethereum, XRP, and other cryptocurrencies on Coinsquare, Canada’s premier trading platform.
Get the latest blockchain and digital currency news from Canada and around the world, delivered each week to your inbox.
Your Email address