#1 - Things to Consider When Starting to Trade [Trading]

When starting to trade or invest, there are many factors you have to consider before you start. These may not be important to many of you because for them this is a game that seems more like gambling than a real profession.

When starting to trade or invest, there are many factors you have to consider before you start.

Before we begin, keep in mind a few basic rules:

• The first rule is to never invest or trade with any capital that you cannot afford to lose.
• Second, you should not allocate more than 2-3% of your total investment capital to your total crypto trading allocation.
• Third, size each trade appropriately and never put more than 10% of your total crypto trading allocation into any trade.
• Finally, if you are new to crypto trading, start small ($50-$100 per trade is more than enough) to get a feel for the market, the exchange interface, and volatility.

Be clear about your risk-reward, risk-reward ratio, margin per trade, time frame of individual trades, current market conditions, and the stage of the market cycle you are trading in.

1. Risk-Reward

Risk-reward essentially measures your potential reward for every dollar you are willing to risk. You should carefully choose trades based on the best potential risk/reward.

2. Risk-Reward Ratio

Risk/reward ratio measures the difference between your entry point, stop loss, or take profit. Comparing these two gives us the profit/loss ratio or reward/risk.

Good traders should have the most favorable reward/risk ratio when choosing a trading position because they want to be paid more for taking risks in the market.

For example, you should expect to earn twice the amount of money you are willing to risk. This gives you a risk/reward of 1:2 or 2R.

2R is considered quite normal, while 4R is considered good.

For example, you can risk $10 on a trade hoping to earn $40 with a Risk-Reward ratio of 1:4.

3. Timeframe

You can use different timeframes to achieve the best investment results. These timeframes are classified as short-term, medium-term and long-term.

Short-term trades usually last from a few hours to a few days. Here you can take advantage of short-term fluctuations in the market. The risk reward for short-term trades is generally lower than that of medium or long-term trades. Short-term trades are considered riskier than medium or long-term trades because you are more exposed to market fluctuations with a smaller margin of error. This type of trading style is suitable for traders with a high risk tolerance.

Medium-term trades are less risky than short-term trades and are based on trades that take weeks to months to operate. This type of trading is suitable for those with a moderate risk tolerance and it takes less time to analyze the market than short-term trades. The risk reward for medium-term trades is generally lower than long-term trades, but higher than short-term trades.

Long-term trades are less risky than short-term and medium-term trades, and help you match the current market trend to achieve the best results. Typically, long-term trades take 4-6 months. Long-term trades are suitable for low-risk trades and are for investors who have little time to monitor the market. The risk-reward for long-term trades is usually higher than short-term or medium-term trades.

4. Margin Trading

Margin trading, also known as leveraged trading, is a form of trading that uses borrowed money to trade with a larger amount of capital than you have. For example, if you have 1 BTC on Binance, you can borrow up to 9 BTC and trade as if you had 10 BTC.

Margin trading increases your profits when you are successful, but it also accelerates your losses when your judgment is wrong.

5. Margin Calls

If your margin trade goes in the wrong direction, you will be asked by the exchange to add more money to your account to avoid liquidation. This is called a margin call. If you are unable to provide additional funds to cover your position, it will be automatically closed.

Using leverage in trading has both benefits and risks. It can increase your profits, but it can also cause your position to be liquidated during sharp price movements in the market.

6. Market Conditions

You should have a full understanding of the current market conditions before you start trading.

For example, is the overall cryptocurrency market bullish or bearish at the moment? Another possibility is that the asset is moving sideways - with no upward or downward trend.

Having a full understanding of the current market conditions will allow you to make the best use of short-term, medium-term, or long-term trading strategies.

7. Market Phases

The market depends on four phases: Accumulation, Growth, Distribution, and Decline.

During the Accumulation Phase, the market enters a prolonged period of price consolidation (sideways). The market may move sideways for months, as indicated by indicators that show a sideways trend in the market, such as moving averages or momentum indicators.

During the Bullish Phase, the market forms an uptrend, breaking out of the previous range-bound conditions. Typically, the price will start to stabilize above the 200-day moving average. Such cycles are often called BULL markets and can last for months or even years.

During the Distribution Phase, the price begins to enter a prolonged consolidation period, with the moving averages flattening out and the price range tightening.

During the Bearish Phase, the price continues to fall and consistently trades below the 200-day moving average. This market is called a BEAR market and can last for months or years.

8. Risk Calculator

The risk calculator is the percentage per trade that I recommend you risk during different market cycles.

1. Bullish phase: The risk per trade should be 10%, across all timeframes.
2. Weak bull market phase: Risk per trade should be 5%, across all timeframes.
3. Accumulation/distribution market phase: Risk per trade should be 5%, across all timeframes.
4. Bearish market phase: Risk per trade should be 10%, across all timeframes.
5. Weak bear market phase: Risk per trade should be 5%, across all timeframes.

The above are notes for those of you who are just starting out in the market, of course there are many other important things you need to learn more, but in this article I only give the points that everyone should pay the most attention to when participating in trading in the cryptocurrency market.

Editor: TonyCapital Team

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