Cryptocurrency Trading Features

January 24, 2020   Bitcoin

The method you approach trading risk is critical for becoming a successful trader. To be a good trader is to develop endurance and persistency, and it's only possible to do this if you learn to withstand blows.

Understanding and learning to manage cryptocurrency trading risks

You should start your trading career by assessing the possible risks and losses that may arise in case of certain adverse market scenarios. Usually, this is the first point to call before you make a deal.

Examine a range of different risk factors and indicators in order to comprehend how volatile the digital asset you are working with is. These risk factors include an understanding of things like price deviation, standard deviation, and so on.

Build your own risk management system that will be comfortable for you and will relieve unnecessary psychological stress when trading.

Use Limit orders

Limit orders are tremendously effective for reducing the short-term cryptocurrency trading risks. They are also applicable for long term investing, especially when the whole market or specific tradable digital asset is highly volatile.

For instance, if you want to open an order for the purchase of bitcoins, you may not receive the desired price due to the asset volatility. Nevertheless, limit orders are meant to help you provide the desired price or even improve it when buying and selling. To use them effectively you should learn how they work.

If you place limit buy orders, this will let you buy one or another cryptocurrency at the price you wish, or sometimes even lower, according to the market situation (which is even better for you). Limit sell orders allow traders to sell cryptocurrency at the price they want or even higher (i.e., which is also better for them).

Close unprofitable positions

Sometimes a cryptocurrency trader can become one-eyed due to authoritative analysts reporting news, so the main task here is to learn how to be as objective and unprejudiced as possible.

Try to escape "falling in love” with your trading positions and always be ready to reduce your losses.

Experienced traders in traditional financial markets often get out of trading positions when the underlying value of a financial asset is between 15% and 20% in the red, but this decision should mainly be contingent on a specific trader’s circumstances and the kind of strategy that he decided to follow.

It’s an effective practice to set a Stop Loss rule for yourself.

Stop loss is a highly useful trading tool which can save you from the deposit draining, because it can be set to automatically close a trading order when a certain unfavorable price level is reached, thereby limiting possible losses.

Stop-loss is absolutely necessary when you are trading with the use of leverage and in marginal cryptocurrency trading.

You need to learn how to set Stop Losses correctly, because if you set it too close to the entry level, you run the risk of stopping the transaction too early. However, if you set the Stop Loss too far from the entry level, you can get significant losses that you cannot return to the forex broker. You should learn how to manage your risk when using Stop Losses.

Carefully evaluate liquidity risk

If the virtual currency you want to trade has low liquidity, then you run the risk of undergoing sudden price spikes (either upside or downwards).

As it was already explained above, that is why it is highly essential for a cryptocurrency trader to learn how to use Limit Orders when buying and selling altcoins, as well as learning the usage of Stop Losses.

A cryptocurrency low liquidity may lead to sharp price spikes, so if you place a stop loss too close to the entry level, the transaction may quickly be stopped at a loss and you may become a victim of slippage (when the position closes well below the stop loss level).

The risk of slippage can be reduced by using a “Guaranteed Stop Loss”, but not every forex broker or online cryptocurrency trading platform offers this.

Experienced traders understand the tremendous value of market data for trading cryptocurrencies profitably. Using both kinds of analysis at once, fundamental and technical, trader can foresee and manage possible market risks by identifying new trends and predicting cryptocurrency market behavior. Even though these metrics can be astounding for beginners, even a little research is important.

Fundamental analysis

In accordance with long-term cryptocurrency trading strategies, such as DCA (Dollar-Cost Averaging), fundamental analysis examines the main factors affecting the prices of cryptocurrencies. These factors may encompass the vision and goals of the blockchain project, the professionalism of the project team, the intensity of project activity on Github, the presence of the project on social networks and the size of its community, as well as the roadmap of the goals’ achievement. Using this approach for short-term analysis is somewhat difficult, taking into attention the high volatility in the digital currency markets.

Technical analysis

Unlike the fundamental analysis long-term usage, technical analysis concentrates on short-term digital assets’ price movements (hours or days timeframes, not months or years). When a trader conducts technical analysis, price charts often pinpoint asset’s trends and patterns that give him an immediate understanding of the market situation. Simplifying these short-term forecasts, technical analysis is highly essential for day traders and short-term tradrs who want to get quick profit. As a result of the high cryptocurrency volatility, technical analysis usage continues to speed up.

Centralized cryptocurrency exchanges

Most cryptocurrency exchanges are centralized today. Being centralized signifies that exchange funds are the property of the exchange itself, not its customers’. For some traders this arrangement is disagreeable, taking into account the long history of hacking such exchanges.

Nevertheless, major centralized cryptocurrency exchanges also offer reliable trading volume for chosen digital assets and sufficient liquidity, thus providing greater flexibility for customers. To reduce the risk of hacking, many traders began to keep their digital currencies in personal wallets, and not in the centralized wallet of the exchange.

Decentralized Cryptocurrency Exchanges

Decentralized exchanges are getting more visible in the cryptocurrency ecosystem. Unlike centralized ones, these digital assets’ platforms encourage peer-to-peer transfers, eliminating the necessity for an intermediary exchange. And although they are similar to each other in principle, these two kinds of online cryptocurrency platforms vary greatly in functionality.

In general, decentralized cryptoexchanges offer the following advantages:

  • Trading without deposit
  • Atomic Swaps (Instant Swaps)
  • No withdrawal or top-up required


For the beginners in the digital assets trading, trading must always begin with an extensive comprehensive verification process. Despite the fact that cryptocurrency markets are similar to traditional markets in their functionality, digital currencies remain extremely unstable, and traders must take into consideration the inherent risks. Although getting stable profits is possible, losses are also very likely.

Using both fundamental and technical analysis cryptocurrency traders take impartial, evidence-based trading decisions. Using this approach can help beginners in making pragmatic decisions, not emotional ones.

You should develop strategies based on your observations and experiments. You also need to check if these strategies are allowed by the broker you've chosen for trading. You need to be aware of the changing market and any relevant news, regularly implement your strategy and be sure that you make the best and most informed decisions. Although cryptocurrency trading can be difficult, even beginners can succeed with practice and desire.

Author: Kate Solano for С

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