Everyone thinks trading the crypto market is very easy. The majority of rookie traders start trading the crypto market without developing the basics skills. Eventually, they blow up the trading account within a short time. If you compare the crypto market with the Forex market, we will find the price movement of the cryptocurrencies is much more extreme. Due to the intense volatility of the market, the traditional currency trading strategy doesn’t work well in the crypto market. This is not the only cause for which we are considering this crypto market as a tough place for investors.
Though it’s a tough place to make money, you can still become a profitable trader. And if you manage to learn the INS and out, you should be able to make more money than the regular currency traders. Now let’s explore the key reason for which the crypto market is considered a critical place.
The volatility of the market
The crypto market is extremely volatile. If you analyze the price movement of bitcoin, you will be surprised to know that it can easily move more than thousands of pips in a day. So, if you use traditional stop loss and take profit, you are not going to get any real benefit in this market. You will lose your capital within a short time. Moreover, you can take the trades in the lower time frame as the false spikes will be much more prominent. To keep your investment safe, you have to rely on the higher time frame data.
Lack of knowledge
The majority of the investors, start trading in the crypto market without having a strong foundation. Some of the rookie traders often trade based on emotions and gut feelings. But to make money in this industry, you have to be extremely careful with your trade execution process. For that, you have to learn the basics of crypto trading business. In the learning period, you should not trade in the real account. Download a demo platform from a high-class broker like Saxo and start using their free tools. Instead of trying to win the trades, try to understand how this market works. Learn about the support and resistance level so that you can take the trades with strong confidence.
Use of leverage
Due to the extreme volatility of the market, you should always trade the crypto market with a low leverage account. But when you will lower down the leverage, the profit factor will become very less. So, managing your trades and maintaining a decent cash flow will become very hard. This is where most novice traders make mistakes. They increase the leverage of their trading account and try to take the trades with high lots. Eventually, they lose a significant portion of their capital. Try not to use leverage more than 1:5 while trading bitcoins as it will keep your funds safe.
Risk to reward ratio factor
Novice traders rarely pay attention to the risk to reward ratio in the crypto trading business. But to succeed in the crypto market, you must maintain a 1:2 risk to reward ratio. If you trade with a negative risk to reward ratio, chances are high that you will mess things up and loses a significant portion of your trading capital.
Learn more about the risk management policy and stop risking more than 1% of your account balance. You might say that you are comfortable risk 2% of your account balance. But as a crypto trader, you should never do that since you don’t know when the market will create a false spike.
Complex news factors
Unlike the Forex market, the crypto trading industry doesn’t have any specific economic calendar. So, it becomes really hard for retail traders to evaluate the fundamental factors. However, if a trader checks the news right before the trade execution process and follows the basic rules of money management, he should be able to survive in this profession.