6 Best Practices for Responsible Cryptocurrency Trading

An overview of the best practices that traders should consider while buying or selling cryptocurrencies.

 

When buying or selling crypto, it is crucial to take responsibility for your decisions. Instead of investing based on other people’s suggestions and feeling FOMO, always do your own research and understand the market.


Trading responsibly requires doing research, analyzing the market, making a proper trading plan and strategies. Take decisions and make a long-term plan when you have a clear head so that you can avoid trading because of your sentiments.


By following some simple methods, you can avoid unnecessary risks. Always make sure that you are investing what you can afford to lose. It is very easy to get carried away and the crypto market is highly volatile. Let us understand some of the simple methods that will help you trade cryptocurrency responsibly.


What is Responsible Crypto Trading?

Responsible crypto trading demands more than just keeping a track of how much you are buying and selling. You need to be in control of your trading behavior and do not act impulsively by looking at the short-term rises and dips. Trading responsibly means you must take accountability for your decisions and understand when your decisions might be negatively influenced.


Responsible crypto trading is a skill that can be developed with time and experience. It is common and understandable that often new traders make decisions impulsively and depend on their gut feeling. But it is important to avoid this behavior and start taking charge of your cryptocurrency trading.


Tips for Disciplined Cryptocurrency Trading

Responsible crypto trading does not start and end with buy or sell buttons. It demands you manage several aspects of your trading behavior. If you are new to cryptocurrency trading, below listed tips might seem a lot of advice. But try to include as many tips as you can into your trading routine.


Tip 1: Secure your trading account and wallet

It is essential to secure your account before you even start trading. No matter how much responsibility you take while trading cryptocurrency, you need to keep your account, funds, and password safe and secure.


There are multiple ways to secure your account which include creating a strong password, using two-factor authentication, and whitelisting withdrawal addresses. If you are using an external wallet, never share your private key and seed phrase with others like your bank account details.


Tip 2: Create a trading plan

Making a long-term trading plan and sticking to it will help you in responsible crypto trading. When you make a plan and stick to it, sudden rises and dips, rumours, FUD (Fear, Uncertainty, and Doubt) will not interrupt your plans.


Your crypto trading plan includes the kind of trades you want to make, your trading objectives, and conditions for trading, etc. You also need to define your limits based on your risk profile and trading style. Your trading plan should contains,

  • Entry and exit prices for specific trades

  • Maximum investment amount

  • Diversification of your portfolio

  • Your crypto-asset collection

  • Maximum losses you can afford to take

  • How much leverage do you want to use


Tip 3: Use stop-limit orders

You can use stop-limit orders to avoid losses and make profits while you are selling. Let us understand what a stop-limit order is. If you buy a cryptocurrency for $10,000 and now the price is $30,000. If the price starts to fall, you need to make sure that you will not sell it for less than $20,000. This way you can make a $10,000 profit and not suffer losses. You can automate this process by setting up stop-limit orders.


Tip 4: Do Your Own Research (DYOR)

Always do your own research while investing and trading. Depending on other people’s ideas and suggestions may not work out for you. This advice is applicable not just for cryptocurrency trading but also for traditional stock market trading.


Whether you trade cryptocurrency through an exchange or using decentralized finance, do your own research and analyze the market. Get a better understanding of your risk profile and what is suitable for your portfolio. Research and analysis will help you understand the crypto market well so that you can make good decisions while trading.

Tip 5: Diversify your portfolio

Diversification of portfolio helps you reduce the risk. If you hold just one or two assets, it tends to be riskier when the price falls. It is advisable to diversify your portfolio by investing in different assets like DeFi liquidity pools, staking, stable coins, altcoins, derivatives, etc. Even if you face any loss in one particular asset like a liquidity pool, you can cover that in another asset like altcoins.


Tip 6: Avoid FOMO - Fear Of Missing Out

Many traders feel ‘Fear of missing out’ commonly. But you need to be careful and observe how FOMO is affecting your decisions. When you feel fear of missing out on an opportunity, you will not care about your limits, trading plans, and take impulsive decisions which might not give your desired results.


Thanks to the internet, we can now find an abundance of information and it is easy to feel FOMO. Apart from being aware of your rash judgments and decisions, you also need to be aware of the people on the internet and social media who are ready to take advantage of your FOMO and make you invest in some tokens. Observe FOMO triggers, take some time to research and analyze the market before risking your money.


To Summarize

Investors and traders need to take responsibility and act accordingly. Whether it is a crypto market or traditional stock market, or commodities, you should always make a long-term plan. It is important to include proper risk management strategies in your trading plan based on your risk profile.


The cryptocurrency market is volatile and it is decentralized. There is no judicial system for the crypto market to hold hackers and fraudsters accountable. You need to look out for yourself and stay away from fake exchange platforms, wallets, and phishing scams. Analyze the market, do your own research and always secure your accounts while trading cryptocurrency.