Margin trading cryptocurrencies is a fast but difficult way to multiply your portfolio in a short time. Many traders struggle to compete with the market and for those who are unwilling to yield to liquidations, we have prepared 10 tips for profitable margin trading.
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Whether you're sticking to the big guns like BTC and ETH or trading cryptocurrencies like SUSHI and AAVE, the principle is the same: you want to be profitable.
However, being a profitable crypto margin trader isn't as easy as it sounds without the right strategies. Trading crypto on margin without having a solid game plan is like sailing without wind — it's very tough to get anywhere.
Here you'll find 10 pro tips for trading crypto on margin used by many of the best traders in the realm. You can develop these tips into profitable bitcoin trading strategies or simply integrate them into strategies you already use.
Either way, how you choose to deploy these tips is up to you!
1. It's all about risk management
This is the best advice you'll ever receive about crypto margin trading: manage your risk.
While it may seem obvious at first, odds are you're not adequately risk-averse, leaving your account vulnerable to heavy losses and potential liquidation.
Essentially, every margin trading strategy that exists is about proper risk management. Margin trading is risky in and of itself. Therefore, to be successful, you have to learn when and how to leave risk on the table and when and how to completely de-risk.
2. Don't double down when you're losing
Because of pride, it's often tempting to double down on a diving position. As the red candle grows, you're likely feeling that there has to be a turnaround at some point, allowing you to make it all back in one trade.
As incredible as this scenario would be if it played out the same way it does in your imagination, the reality is the market will beat you more often than not. As such, when a position is losing, resist the temptation to chase it down the rabbit hole.
Instead, because cryptocurrencies are highly volatile and prone to massive downside (just as much as they're prone to monstrous upside), consider cutting losing positions early, especially if you have open positions in other coins that are in profit.
3. Avoid dogmas and fixed beliefs about the market
Every trader has an opinion about where the market is heading. That's the nature of taking a long or short leveraged position in BTC or any other cryptocurrency.
However, there's a difference between having an opinion about market direction and being stubbornly dug into a belief. Let's say you decide to long Bitcoin because, after doing the requisite technical analysis, you're sure BTC is about to bounce off of a long-term support level.
Sure enough, the bounce comes, but it does so on unconvincing volume and quickly loses strength. An astute and flexible trader would recognize this and consider cutting their long in small profit to sit on the sidelines and let price develop further.
Another type of trader, one who is firmly fixed on a permabull thesis, for instance, might see this, along with other evidence to the contrary of the bounce, and reason it all via mental gymnastics back into their bull thesis. Sure enough, a winning long quickly turns into a blown-out trade — something that's easily avoidable if the trader remains belief-agnostic.
The best way to trade cryptocurrency is with an open mind: anything can happen, so be prepared for any scenario to play out.
4. Minimize your trades, AKA stop overtrading
One of the most common mistakes both new and experienced traders make is overtrading.
To be clear, not taking a position is to take a position.
The point being, remaining on the sidelines is like being long or short — it means you're acting on your beliefs about the market. When viewed in this way, you will likely feel less pressure to enter the market without a strong reason.
Minimizing your trades to the most essential ones is possible by letting price action unfold and develop while you observe it unemotionally. By remaining unattached to the market in this way, you'll be ready to act on the best crypto trading opportunities as they arise, rather than chasing every green candle appearing on the horizon.
5. Understand that crypto markets move in cycles
Like every system on Earth and beyond, the crypto market moves in cycles. Commonly referred to as trends, cycles are the directional forces that sweep price direction generally in one way or another.
Because of market cycles, there are bull, bear, and flat market conditions. Your job as a crypto trader is to understand which epoch the market is in at the time of your trade — and to know that cycles can change quickly.
Within a larger market cycle (such as a multi-year uptrend), there can be smaller counter-intuitive cycles, such as bear markets within bull markets. This is due to the nature of timeframes. Judging the market according to shorter timeframes is always more speculative and inaccurate than gauging the market according to higher timeframe trend analysis.
As such, the more risk-averse trading will take positions according to beliefs about longer-term trends rather than short ones, as the latter is much harder to predict.
6. The trend is your friend
We've all been there before: The market is trending in one direction, but you're worried about jumping on the bandwagon with every other trader. So, you decide to "counter-trade" the market by staking a trade against the trend.
This, my friend can be a disastrous thing to do during times of strong trends. As reductive and over-simplified as it may sound, when the market is bullish, it's just bullish. The same can be said for the opposite.
The takeaway is, when, like a strong tide at the beach, the market is exhibiting a forceful pull in one direction or another, it's often best and easiest to simply go with the flow. After all, evidence cycles with strong direction are rare enough — you should enjoy them while they last.
7. Have a strong understanding of technical analysis
Do you know the difference between support and resistance levels? How about the functional uses of RSI and MACD indicators?
Understanding how to use technical analysis to your advantage when margin trading cryptocurrency is a crucial component to successfully managing risk.
Without a solid technical analysis skillset, you are essentially flying blind in the crypto market. Technical analysis can help you gauge when to enter and exit a position, where to place a stop loss, or how to identify long/short squeezes that can potentially liquidate your position.
Additionally, knowing how to use TA will help you develop a rigorous trading game plan that you can follow and execute without unnecessary moves that waste both time and money.
8. Fundamentals are important too, including what's going on in crypto news
While technical analysis is the most important tool for any crypto trader, having a solid grasp of a project's fundamentals can be just as important if you're taking a longer-term trade.
However, even if you don't necessarily know what a given coin does or whether the project is making headway in its niche, you can at leastfollow the news.
Reading Coindesk or Cointelegraph daily is a good way to keep up with some of the larger, more important events shaping price action, especially when there are unforeseen circumstances, like lawsuits, bubbling up.
For instance, had you been trading XRP based on technical analysis alone, you'd likely have been blindsided by the sudden SEC lawsuit announcement that promptly led to a sharp decline in prices. Some traders, completely oblivious to the news, bought the dip and were promptly rekt.
As such, a well-rounded trader always knows enough about a trade's fundamental and technical aspects.
9. Crypto margin trading is not set it and forget it
The difference between spot and margin trading crypto is that the former can be left alone (given a trade's timeframe) while the latter must be managed by an active trader.
You can't long ETH and then simply walk away — no, that's a recipe for disaster. Trading crypto on margin requires day-to-day management if you want to avoid getting rekt. If you aren't fully committed to your trade in the sense that you're prepared to move on it at any moment, you won't be ready to cut your losses early, leading to larger and entirely avoidable losses later.
Wise crypto traders always close their positions before leaving for vacation or an area where they won't have WiFi. Additionally, depending on the nature/timeframe of your trade, you may want to consider closing your positions before going to bed.
10. Never go all in
In the land of risk management, going all-in is cardinal sin number one.
Now, write this down and tape it to your wall above your trading setup. Nevergo all in.
Going all in is the most surefire way to end up utterly destitute, empty of account, and knocked out of the crypto trading life for good. Remember, the mark of a successful crypto trader is longevity.
The longer you survive in crypto trading, the more likely it is that you're doing well at it. Otherwise, your funds would have dried up long ago. As such, always keep additional funds on the sidelines to leverage your way into or out of tough scenarios — something you simply can't do if you've spent your last satoshi on a degen trade for Twitter clout.
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About The Author:
Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.