Crypto derivatives trading can be plain wild, this is something any trader learns at his or her expenses fairly quickly.
But you can tame them to an extent by following these four simple tips.
Lesson #1: In the long term, overbought and oversold are not reliable concepts
The first lesson that many traders should bear in mind is that overbought and oversold are not reliable concepts in the long run.
A lot of information regarding overbought and oversold levels can be found in guides and books, with new traders often hearing that if the market reaches overbought levels, it means that there are many buyers in the market and prices will eventually fall. Conversely, if the market lowers to an oversold level, it means that there are many sellers in the market and the price should rise.
So they look at the RSI or stochastic indicator and if they exceed the value of 70 or 30, they enter the market in the opposite direction.
However, during a strong uptrend or downtrend, the market may remain in an overbought or oversold area for weeks. Or even months prices continue to rise or fall.
Every valid overbought or oversold signal may be accompanied by other false signals, meaning that while in the short term traders may profit, in the long run, chasing overbought and oversold levels is not profitable.
Lesson #2: 200 DMA is the one moving average you should include in your chart
Another lesson is that the 200 DMA is the one moving average that should be considered in the chart.
Many traders like to set 5-6 indicators. However, evidence from plenty of successful traders shows that focusing only on the 200 DMA often results in better trades.
This is because the 200 DMA is very effective when trend trading, as it can establish potential dynamic support or resistance areas, and even accurate entry points. Many institutional traders, such as banks and hedge funds, also use this indicator.
Lesson #3: Learn from losses and find a style that suits you
Losses are very important to the development of every trader. They may be painful but they are the best teachers. When the account loses money, it is important to learn from experience and avoid making the same mistake again, thus preventing greater losses in the future.
At the same time, traders should choose a strategy that suits their personality. Not everyone has the ability to implement fast-paced trading techniques or simply do not want to monitor price movements very closely, sitting in front of the screen all day.
Find a trading style and time frame based on your risk preference and tolerance. See if you are suitable for day trading, swing trading, position trading, or scalping. Ask yourself whether you prefer technical analysis or fundamental analysis.
Lesson #4: Keep your funds and survive
Successful traders focus their attention on the possible loss of funds and only then consider how much they can profit. The key to making money with crypto derivatives trading is to survive first and profit later.
And this means to know how to properly stop losses.
When people step into the market for the first time, they often display a gambler mentality and just focus on how much money they could make without considering losses.
However, new traders should ask themselves how to keep the principal and continue trading, and how to deal with losses and survive the market.
In fact, just by achieving no losses, you are already ahead of most traders.