However, to get to your first gaining there is no need for investing that much. In this article we discover the rules to follow while trading crypto with small amounts.
1% risk principle
The 1% risk rule means that you set a limitation of losses from one particular trade to 1% or less of the total amount you invested. When trading cryptocurrency following this principle, sellers with small investments stand on the same level together with large accounts. Experienced traders and crypto veterans stand on the 1% risk rule same as newbies, as there hardly exists better money-management technique with no added risk.
1% risk strategy will be highly effective and convenient to analyze the market entrance and exit if you are doing day trading. Even at the time when the market is enormously volatile, this principle will secure you from unexpected losses and keep you on track.
Trade with leverage through brokers
But first, what is leverage itself?
Leverage is when you open a trading position using capital borrowed from a broker. Experienced traders apply leverage as their strategy to gain more bargains with small capital. Leverage in crypto trading is used in multiples of the amount invested by the trader, for example 2x, 5x, or higher. The online broker always loans this capital to the trader at the fixed ratio. Leverage is used to both buy (long) and short (sell) positions.
It is important to note that any losses will be multiplied as well as profits.
Let’s take an example. If a trader borrows from the broker 1:50 leverage, he can move Bitcoin worth $10,000 just by investing initial capital worth $200. Thus, when Bitcoin rises by only 1%, the trader gains $100.
As leverage is a double-edged sword, so traders have to be ready for the big reverse when the price drops down. Leverage is very popular among forex traders as they tend to benefit from small deals in currency pairs.
In case you want to trade a small capital in Bitcoin with a forex platform, leverage can be very useful when entering the market.
What can you do to minimize risks when trading with leverage
Most of the trading platforms will provide you with 3 main options to save your funds.
Stop Loss
Use a stop loss feature to close your trade in case the market moves a specified amount against your position. You can set your Stop Loss according to a specific rate in the market or as capital amount.
Take Profit
Use a take profit feature to auto-close your position when profit on your trade reaches the amount you set.
Negative balance protection
Some of the trading platforms can reset your equity to zero in case of the negative market conditions.
Get over your emotions
Emotion is the psychological state of a person affected by the environment and his reactions to it. In trading, same as in real life, it is better to avoid some of the emotions.
Greed
Traders who are led by greed do not keep the principle of risk and usually never follow the money management rules (see 1% risk principle). Traders with the mindset of gambling do not apply the rules and consider trading to be based on only impulsive decisions. Usually greed brings them nothing except lots of losses.
Fear of Loss
Fear is one of the most common emotions that can ruin your trading. Keep in mind that profit and loss are two sides of the coin. When planning to get a profit, be ready to lose the same amount. Trading rules are life rules, always hope for the best but prepare for the worst.
Fear of HODL (Hold On for Dear Life, or hold Bitcoin, do not sell it first) can also bring you to closing the trade too early. Although knowing that if you are a little more patient you get much bigger revenue for the waiting.
Deceptive Hopes
After all, sometimes high expectations and too much optimism are the biggest trap trader can be caught in. When an optimistic trader loses, he can do illogical actions which destroy the whole picture. In trading, same as in life, it is sometimes necessary to take a break and spend some time on a new strategy, instead of investing more in hope that losses will be covered.
