The Basics of Altcoin Trading. I feel somewhat preposterous to write about this. This field is so young that nobody really is an expert. There is no standard “How To Trade Altcoins”, yet.
Technically, this is FOREX (foreign exchange) trading, but it is very different. FOREX traders act on a very stable market, where prices change less 1% a day. They heavily use leverage/margin trading for profit. In contrast, the altcoin market is very volatile. Spikes of 1000% happen every week. We do not need margin trading here nor is it even available at the exchanges. Also, altcoin exchanges are very primitive compared to USD/EUR brokers and liquidity is very low.
So what basic knowledge can you acquire for altcoin trading?
You can learn risk management from the FOREX traders. The principles are the same. It basically boils down to
- Only invest something like 2% of your budget. You might lose it a few times in a row due to bad luck. If you had invested 30% three times and lost it, you have to make 1000% profit with the rest to break even.
- Invest money you can lose. You want to keep the emotions out, so losing money should not affect you.
- Keep the losses small. This sounds easy, but is actually hard. Accept a loss before it gets too big. Accepting that you were wrong is emotionally hard.
- Keep in mind how much you risk vs profit. Do not risk a lot of money for a potential 1% profit. At first you are unable to estimate the risk, so be extra careful until you have some experience.
- Diversify. Especially once you have a bigger budget. Split your money up and invest in everything with potential. Sometimes you will lose, sometimes you win. If your strategy was right, you will win more than you lose over time.
Tools of Trade
There are some tools and technologies, which are simply necessities. So a serious trader has to learn a few things.
- Learn reading charts. At least those candlesticks. No need to bother with advanced stuff like “resistance bands”. For altcoins this is not applicable. Look into this when you want to trade BTC/USD or BTC/EUR.
- Learn the differences between the exchanges, so you can make an informed decision which ones you want to use and how much money you want to risk leaving there. For example, Cryptsy has good liquidity, while Cryptorush has lots of smaller coins.
- Learn some technical details like what Kimoto’s Gravity Well means and its implications. What is premining? What does block halving mean?
Keep learning. As there are no experts here, every girl must learn by herself. So take the time to reflect your last actions. Here are some questions to think about:
- Did I do it right, although I lost money?
- Did I do something wrong, although it was profitable?
- What unreasonable things did I do?
- Where my decisions rational or did I rationalize my emotional decisions?
- What skills should I acquire to improve?
Documenting your actions helps tremendously for reflection. Make screenshots. Write down your reasons for each action. Read the old stuff sometimes. What would you do differently today?
Does all that sound like a lot of work? Well, altcoin trading is a way to get rich quickly, but it is not easy. Take it easy. I am here to help you. One of the big contributions of this blog here is to chop information mountains into small blocks and present them in easily digestible bites.