For new (and old) crypto traders, Forex is a natural place to look for guidance. Both markets trade currencies in a decentralized system using analytics and behavioral psychology. Of course, forex is the old wise grandpa and crypto is the fresh-faced young(un) that wants to prove itself. Of course, we could all listen to what Gramps has to tell us every once in a while; he’s been around the block a time or two, or, in this case, since the Medieval times.
Here are some crucial tips from the best Forex traders that all of us can apply to our crypto-trading routine.
Don’t Invest What You Can’t Afford to Lose
“Don’t focus on making money; focus on protecting what you have.” — Paul Tudor Jones
This is the golden rule of trading. Investing is not the same as saving. Don’t cram your retirement account into crypto investments, and certainly don’t spend over your living budget. Investing is, by nature, risk. Sure, crypto investing can be a fantastic pad on your retirement savings, but it should never (unless you are very young) be your retirement plan.
Learn How to Take a Win
“Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.” — Yvan Byeajee
This tip is probably the one that takes young investors the longest to learn. Just because your alt-coin has jumped 24%, doesn’t necessarily mean that you should hold onto it in hopes that it goes to 34%. Sure, you can hold onto a portion of it, but you should be reinvesting assets from your winners into other picks in the market.
Don’t let greed get the better of you. You don’t want to be holding onto stocks that are going to end up diving a few points simply because you wanted an extra 2%. Be smart.
Cut Your Losses
“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” — Ed Seykota
This may be cliche, but cutting your losses is the single most crucial emotional step towards successful trading. Yes, you got it wrong. No, it’s probably not going to rebound. Yes, you should sell. That line of thinking will keep you in the game. Sure, 1/100 will bounce back quickly, but those are terrible odds. If you’ve put $2,000 into the new shiny alt-coin and you see that it’s tanking, jump ship. We see too many new crypto-investors that go all-in on one coin. They jump on the coin’s subreddit, and they’re pretty sure it’s the next Bitcoin. It’s not. Sure, chase the hype — there’s money to be made in the hype — but don’t emotionally invest yourself in the latest ICOs crazy cool gamified blockchain system.
Wherever Bitcoin Goes, the World Follows
“There is a huge amount of freedom that is derived from not fighting the market.” — Yvan Byeajee
Forex traders eyes are glued to the USD 24/7. Fluctuations in the USD will guarantee fluctuations in every other currency. The same exact thing is true with Bitcoin. The grandfather of cryptocurrency is also the markets quarterback. If Bitcoin drops, everything is impacted nearly instantly. Anytime Bitcoin has a fluctuation, altcoin prices drop. If Bitcoin starts rushing upwards, everyone drops what they’re doing and throws money at Bitcoin. If Bitcoin starts to plummet, everyone assumes that this means that all the altcoins will plummet as well (same with USD and JPN.) Where Bitcoin goes, you should follow.
Learn to Focus on the Long Term
“I’ll keep reducing my trading size as long as I’m losing… My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.” — Randy McKay
Here’s the thing. Most crypto traders will fail, and, unfortunately, very few of the ones who succeed will set long-term financial goals into place. Here’s the thing about trading short-term, it starts to make you think short-term. You have to remember to take wins and reinvest them into some long-term mutual funds, Roth IRAs, or other funds that will help you passively grow your incomes.
Love the Game
If a trader is motivated by the money, then it is the wrong reason. A truly successful trader has got to be involved, and into the trading, the money is the side issue… The principal motivation is not the trappings of success. It’s usually the by-product — simply stated, “the game’s the thing.” — Bill Lipschutz
Bill Lipschutz is absolutely right (which is probably why he’s such a successful Forex trader!)
You have to take the emotion out of your decisions. Don’t get caught up in the hype, and don’t let your losses tear you apart. You want money to be secondary. Ultimately, the best Forex traders in the world all look at the market as a game. You want to win the game because you enjoy the game — not because you can afford a new truck.
Don’t let money be what drives you, let the trades drive you forward.
We can all learn a ton from Forex traders. They’ve been in-the-game for a long time, and their long-held strategies transition smoothly into the crypto world. Just like we’re trying to bring everyone in cryptocurrency trading the same dynamic tools that Forex traders are using, you should be taking their advice and applying it to your daily trading routine.