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Top 5 Strategies Professional Crypto Traders use to Maximize Profits

Michiel Mulders
September 14, 2020
crypto traders, crypto trading, investing, bitcoin, bitcoin lending

The world of crypto trading is often merciless. Rapid fluctuations can turn a profit into a quick loss. Thus, controlling your emotions when trading cryptocurrencies is crucial to success.

Many traders attribute their success to the years of experience they have. However, the key factor that determines your crypto trading performance is your capability of controlling emotions. A single emotional mistake can quickly ruin your trading profits. Furthermore, many traders experience a negative spiral of emotions, stacking emotion-loaded trading decisions.

For that reason, controlling your emotions is one of the key aspects to maximizing your crypto profits. This article discusses how you can leverage the power of setting targets and planning to improve your emotional control. Further, we introduce different selling strategies to increase trading profits. Make sure to read this article to the end as we’ve included a bonus section with some insider tips. 

Let’s get practical!

#1. Avoid FOMO and Control Your Emotions

It’s crucial to understand different emotions exist and can affect your crypto trading decisions. Here are the three most common emotions:

Fear

Crypto’s native volatility is a major reason for sparking fear among traders. Often, traders use uncomfortably large stakes when trading crypto, which has a big impact on their stress levels. Therefore, trading with improper trade size magnifies emotions, and so, generates more feelings of fear. This is particularly dangerous as fear is one of the driving motivators for making incorrect decisions.

Conviction or Excitement

According to the Google dictionary, “conviction” describes itself as a firmly held belief or opinion. In other words, you are excited about a certain project, not being able to see the disadvantages or shortcomings. You firmly believe in the success of a project, almost in a dogmatic way. You can quickly spot such emotions with other people when they neglect or reject any criticism a project receives.

Greed or Overconfidence

The feeling of greed or overconfidence can have pernicious side-effects. You feel as if any trade works out well. The feeling of overconfidence can be sparked by a series of correct trades. However, we should also take a look at market cycles. A market can reside in a feeling of optimism, thrill, or even euphoria. In such type of market, it’s much easier to make profitable trades. However, when market psychology changes to more negative emotions, such as anxiety or panic, a feeling of overconfidence can get you quickly in deep losses.

So, how can you effectively control your emotions? A golden tip is to reduce your trade size to reduce the effects of feelings such as fear. When it comes to excitement and overconfidence, you have to learn to understand your own emotions but also understand market cycles. For example, the whole 2020 DeFi hype has rocket the crypto market to a feeling of optimism. 

A quote by Warren Buffet accurately describes why understanding emotions is crucial for trading success: 

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. 

If you continue to struggle to keep track of your trading emotions, try out journaling to better understand your emotions.

#2. Make a Plan

Sounds simple, right? Creating a trading plan requires minimal effort but has a much larger impact on how you approach crypto trading and helps you with controlling emotions. A plan can give you boundaries and targets. Those boundaries and targets make it much easier to make the right trading decision as you have a plan to fall back to.

A plan helps you with the following aspects of trading:

  • Determine how to react to certain events. For example, what do you do when a project releases new functionality? You can plan to buy a 5% extra stake in this project. Or what to do when a project experiences a hack or bug? Planning for unexpected events will help you react faster and make better investment decisions. 
  • Determine which indicators you want to use for making trading decisions. To give an example, you can rely solely on the Relative Strength Index (RSI) indicator for making investment decisions.
  • Plan how you handle trading success? When do you sell a particular cryptocurrency? For example, you can gradually sell a crypto when you’ve reached a profitable trading position. Some traders like to define how they want to reinvest crypto profits.

Next, let’s discuss in detail the importance of setting targets. Targets are an important element of your crypto trading plan.

Want to access more trading capital? Take out a crypto-collateralized loan using YouHodler’s loan platform. YouHodler offers almost instant loans with the highest loan-to-value ratio of up to 90%.

#3. Set Targets: The Importance of a Stop-Loss and Take-Profit

Let’s discuss two important trading instruments: a stop-loss and take-profit. 

First, a stop-loss prevents you from losing more money than you want to. For example, you open a trade you expect to be successful. However, the volatile nature of today’s crypto markets can quickly set you at a loss. Therefore, a stop-loss allows you to set a floor for your trading position.

However, watch out when determining the right stop-loss position. It’s important you give your crypto trade plenty of breathing room. As crypto is very volatile, the price can fluctuate a lot. Therefore, when you set a very tight stop-loss at 5% below the opening price of your trade, you might find out that your order got closed even though that your trade turned out to be correct. 

Setting stop-losses too close, and you can get out of a position too quickly.

Tip: Look up the volatility index for the cryptocurrency you are trading. This gives you a better indication of where you can safely set your stop-loss to give your trade plenty of breathing room. 

Next, let’s discuss the importance of setting a take-profit. A take-profit actually serves as the ceiling for a trade. A take-profit will automatically close a trade at the predefined target price. Again, you also don’t have to monitor the charts every minute of the day to sell a crypto trade at the right moment.

Now, you may wonder why both stop-loss and take-profit are important? Well, they help you with setting fixed targets. In other words, you don’t have to stress about when to sell a crypto trade as you’ve set both the floor and ceiling for that trade.

Recommended read: 4 ways to exit a trade and protect your capital

#4. Don’t Try to Sell Crypto at the Top - Try Percentage-Based Selling

Do yourself a favor by not selling all your crypto at the top. Many different strategies exist, such as percentage-based selling, to assist you with effectively selling crypto to cash in profits.

Do yourself a favor: stop trying to get out at the top!

First of all, selling all at once puts you under a lot of stress. Suddenly, you’ve got a large sum of spare money at hand which you likely want to reinvest. Again, this increases stress as you want to quickly find a good trading opportunity, creating more room for mistakes.

Therefore, let’s discuss how percentage-based selling works. Percentage-based selling complies with the rule of not selling all at once. In contrast, you want to sell portions of your trade when certain targets have been met.

For example, sell 50% of your trade volume when your trade hits a predefined price target. However, we don’t want to sell everything as the stock might continue to rise. Why throw away a winning horse? Therefore, we set different selling targets to sell smaller percentages of our total trade volume. 

Most commonly, you find the below percentage-based selling strategy:

  • Sell 50% at price target A
  • Sell 25% at price target B
  • Sell 15% at price target C
  • Sell 10% at price target D

This strategy allows your trade to continue to grow while gradually taking profits. Moreover, it gives you more time to reinvest profits into other trades.

#5. Be Mindful About Resistance Levels

Resistance levels play an important role in traditional and crypto trading. They act as psychological borders for traders. It’s one of the easiest indicators traders agree on, so respect those borders!

According to Investopedia, a resistance level can be described as “the price at which the price of an asset meets pressure on its way up by the emergence of a growing number of sellers who wish to sell at that price.”

To give a bad example, you detect a trading opportunity by using looking at the RSI indicator. However, you aren’t mindful of resistance levels and buy-in at a price of $100. You haven’t noticed there’s a months-old resistance level at $102. Therefore, it’s very tough for that cryptocurrency to push through this resistance level. In conclusion, you’ve opened a bad trade as the price is most likely to go down and hit your stop-loss target.

Tip: When analyzing charts, start with the basics - resistance levels. Build up from there looking for common patterns such as a head and shoulders pattern, a bullish flag, or just look at your RSI indicator.

Expert Advice: Diversify Your Trades Using the Barbell Strategy

You’ll likely have read this advice before. Diversification helps to spread risks among many different trades. However, I want to introduce you to an alternative diversification strategy called the Barbell strategy.

The Barbell strategy relies on the 80/20 principle where you invest 80% of your trading volume into safe investments and 20% into higher risk crypto trades.

For example, you have a trading budget of $10,000. This means you can invest $8,000 into a stablecoin such as USDT or USDC and use it with YouHodler’s saving account to earn a passive interest of up to 12% APR. 

The remaining 20% percent can be used for opening a crypto trade. In case your trade turns out to be incorrect, your losses are covered by the passive income you’ve generated via your 80% passive investment.

Maximizing Profits Made Easy - Or Not?

And there you have it! Five actionable tips to increase your crypto trading profits, make better investment decisions, and have more control over your emotions. Yet, trading is a form of art - which is hard to master. 

Having a set plan with buying and selling targets will help you to become a better trader and remove the negative influence of emotions such as fear, greed, or overconfidence.

Lastly, definitely check out the Barbell strategy YouHodler promotes to combine a safe investment with a more risky crypto trade. You can use YouHodler’s saving account for this, however, any other form of passive income works well as long as you adhere to the 80/20 principle. 

Good luck trading!

About the Author
Contributor

Michiel Mulders is a blockchain developer with a passion for the crypto space. His interests include blockchain, entrepreneurship, marketing, and carefully crafted beers. Cheers!

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