It is important to plan money management in all your financial decisions. However, it becomes crucial with crypto trading.
One of the best life advice is ‘Better Safe than Sorry‘. A cryptocurrency trader should bear this in mind whenever entering the market at the start of a new day. The cryptocurrency market is extremely volatile. You can expect anything within the span of a few hours. Therefore, plan the money management beforehand. It will save your valuable assets. In addition, you will not be pulling your hair out on market dips.
Cryptocurrency day trading has made many people rich. It has the potential of improving your financial condition if done right.
Money management helps you earn long term profits. It keeps your portfolio in-line and holds you back from risking too much. Past performance is no guarantee of future results, and there are no guarantees when trading. Never trade with money you cannot afford to lose.
Cryptocurrency Traders have more reasons to plan money management than anyone else. They are at high risk all the time. There are many blockchain ventures and cryptocurrencies that are a complete scam. People get robbed of their hard-earned cash in a matter of a few days. So, take some time and read the things you need to know before investing in bitcoin.
Here are three ways to plan money-management after you have decided to invest in crypto.
1. Set a Budget:
Set a budget for your cryptocurrency day trading. It should be a surplus amount from your income. This single decision will keep you calm during the disruptive market swings. Traders who have their children’s tuition on the line will unnecessarily panic on every dip.
A trader should not invest beside the set budget. Once the budget ends, it is time to go home.
Budgeting is an excellent way of remaining in control of your money. Don’t let the market make you overspend or underspend.
2. Set the Risk-Level:
How much I can afford to lose? This is the first question you should ask yourself. Your threshold for risk is the amount you can let go of easily and it won’t hurt your financial decisions. Every person has a different risk threshold depending on the money and assets they have. If trading is just a side-hustle for you then you can obviously risk more. However, a college student or retiree with pension money will not be able to withstand big losses. Hence, plan accordingly. Here are some ideas:
- Fix the time that will minimize the monetary loss. i.e if your investment is long-term then the chances of failing trades will be slightly lower.
- Invest in currencies that look promising. You can ask other professional traders in this regard. Don’t increase your risk by investing based on your whims.
Cryptocurrency day trading will become a bane to bear if your financial condition is already vulnerable. So, keep a backup asset in case you lose big.
3. Have Entrance and Exit Points:
Arbitrary trade increases the chance of losing money. In order to plan money management, have solid entry and exit points. Cryptocurrency trading is not a gamble. You can’t trade to regain what you lost. So, trade to protect what you already have and top it up with the profit.
Once you see that your losses are swelling exponentially, call it a day. Don’t revenge trade because then you will end up losing even more. Stop-loss can also help you here. Nonetheless, don’t alter stop-loss points later in the trade.
Another thing to mention here is, you cannot keep earning profit forever. Set a monthly percentage of profits. Exit trades after the goal is met. Greed is detrimental to cryptocurrency trading. Thus, try not to be a victim of this emotion.
Not putting all your eggs in one basket is the best plan for money management.
Different cryptocurrencies have varied behavior over the course of time. Crypto coin like Litecoin has the trust of a large crypto trading community. They have high trading volume and subsequent liquidity. Therefore, you are relatively safe when investing in this coin. On the other hand, there are coins that are new and in the Defi. Their potential swings in the market are unknown. Hence, they are a risky investment.
Crypto traders should keep their portfolio balanced. It should have both well-performing and not so well-performing coins. This will help you hedge against the risk in the long run.
The reality of money is what money does. It exchanges value. Make use of your money wisely and plan money management while trading in the crypto market. You can always get some help from the crypto trading community for getting your ducks in a row.
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