The 5 Most Powerful Disciplines For Crypto Traders!
Without money, it is not possible to be involved in the crypto market - that is logical. But if you want to take advantage of opportunities and control risks, it is enough to make sure that you have your portfolio under control, that there is order and that the risk always remains manageable… or not?
What does "money management" mean?
No, it is not enough. Money management does play into one's portfolio, so it has a smooth transition into portfolio management. But it starts earlier. It starts, as the name suggests, with the money itself. It's about using capital wisely and responsibly. And that is by no means a given.
Money management is the first crucial step for anyone who wants to do more with their money than let it sit in a bank account. What do I do with my money? Which money can and may I use in which area? And, most importantly, what am I not allowed to do? Let's take a look at the most critical aspects:
1. The financial framework must be right
Only those who put their finances on solid footing will have the necessary time and peace of mind to invest successfully in the crypto market. Of course, Crypto gains can increase your wealth considerably - but your financial foundation must never rely on such payments because they are not predictable in time.
Whenever you suddenly need to get hold of money invested in the crypto market, it tends to be bad times for others as well - and the prices are unfavorable. Therefore, be sure to observe the following basic rules:
- Determine in advance how large a portion of your assets should be used for investments in the crypto market.
- Make sure that this capital is and remains freely available. It would be best if you were not under time pressure. Because if you get under time pressure because you need the money for something else by a specific date, you usually make fatal mistakes!
2. The credit taboo
Never take out a loan for your investments from a bank under any conditions, no matter how tempting! No matter how low the interest rate you would have to pay for a loan is, if your cryptocurrencies bought on credit slip into the red, you would not be able to come up with the sum to repay the loan when called upon to do so. And whenever prices plummet, such repayment demands commonly come. A seemingly clever idea would then become nothing but debt - for nothing and nothing again.
Never handling money that doesn't belong to you is the most important rule of money management of all. And one that is nevertheless too often disregarded with fatal consequences. In any case, rule out the possibility that you will have to pray that prices will rise again in the event of a setback because you have speculated on credit. After all, it is precisely when sheer fear grips you that you make the most significant mistakes!
3. Spread your investments!
Never put all your eggs in one basket, no matter how "safe" it seems to you. There are always unpredictable elements in the stock market that require you to stand on several "legs"!
Base your diversification of positions on your financial circumstances and planning.
4. Always proceed according to plan!
It would help if you remained master of your actions and positions at all times. This implies:
- Determine in advance what portion of your capital you will commit to a new position.
- Determine already before the entrance where you will exit in the case of the failure of trade and stick stubbornly to it!
- Consider precisely how significant the risk factor of a new position should be and how high the loss may be maximal, which you are ready to admit!
- Ensure that the remaining cash balance allows you to expand winning positions successively or take advantage of new opportunities. You always need a cash reserve as an investor!
- Do not overload your portfolio. Never hold more positions than you can monitor regularly and closely!
5. Money and emotions are fatal partners
What do money and emotions have to do with each other? Investing is a very "dry" matter, you might think. True, if you are an outsider. But once you have started to invest actively, you know very well: Emotions are always involved in profits and losses. But they consistently prove to be bad advisors:
Greed, hope, fear, uncertainty, panic are the biggest loss-makers on the stock markets. Banish such emotions and always stay level-headed! A few essential tips:
- Never act hastily by jumping on a suddenly discovered, just "starting train". Never think that otherwise, you will miss the trend impulse. There are opportunities everywhere and all the time. Before you could not calmly weigh up how the chances and risks are estimated, the entrance is forbidden! Because too often, sudden movements turn out to be a trap. Force yourself to be calm and level-headed. A real trend is not over after one day. So why the fear of being late?
- If you cannot foresee how a trade should develop, stay away from it! The fear of missing something is a fatal advisor. Better to be on the outside than to start any trades haphazardly!
- Do not become too greedy! If you get into a profit frenzy, you tend to take too significant risks. And then the loss of control threatens in a flash!
- Isolate yourself from the opinions of others. There are countless opinions on every aspect. The louder the "noise" you allow around you, the greater your insecurity will become. Search specifically for facts, not for the opinions of others! You alone decide - because it is YOUR money!
- If fear is appropriate in the crypto market, then fear of losses! Far too many investors become "courageous" when you suffer losses. They do not limit them but "get through it." On the contrary, you should only become courageous when you profit. Losses rarely eliminate themselves, so remain unemotional and prudent by implementing your stop prices ironclad. Of course, you can always find reasons to make an exception here or there. But these are excuses. Stay consistent with your loss mitigation!
- Always remember that you can rarely be objective. Most of the time, your portfolio holdings also unnoticeably control your assessment of the situation. Detach yourself from it. Try to continually assess the situation as if you had no position and were an uninvolved observer!
Conclusion: Remain humble!
And last but not least: always pretend that a new trade is your first! Resist the temptations:
- To recover losses faster by increasing the risk of adding new capital.
- To visually reduce losses by buying into falling prices.
- You are getting sloppy in weighing the situation in advance of trade because your successes whisper that you know the drill!
Then you will have your money under control. Then you are practicing effective money management, something that by no means many investors have mastered!