As you might already know, at cryptowisser.com we believe that the most important things you need to know when perfecting your cryptocurrency investment strategy are:
- First, choosing the best cryptocurrency exchange site;
- Second, choosing the best online wallet;
- Third, choosing which cryptocurrency to invest in; and (if you’re good enough)
- Fourth and finally, choosing ways to spend your crypto fortune.
In our endeavours to become your number one trading cryptocurrency guide, we have created a Cryptocurrency Glossary, a Cryptocurrency Infographic and a detailed description of how cryptocurrencies differ from shares and other financial instruments. But we haven’t stopped there. This guide provides a lot of helpful data in order for you to get a better understanding of cryptocurrencies. Maybe it will even help you venture into the world of crypto yourself. Print it out and read it in the sun in your hammock! Or maybe in the middle of the night in the fluorescent light of your computer screen. Your call.
Here we go!
Only invest what you can afford to lose
Crypto investments are highly volatile. You have probably heard about crypto investors multiplying their initial investments with 100 and yes – cryptocurrency profitability can be great. But is Bitcoin a safe investment? No. Are other cryptocurrencies necessarily a safe investment? No. Where there is extreme upside, there is also extreme downside. If the Facebook-stock falls with 20% during one trading day, it marks an extreme crash and scares most of its shareholders senseless. Where the Bitcoin falls 20% during one trading day, it’s essentially just another day in the crypto world for most Bitcoin-investors. As such, when trading cryptocurrency for profit, one should only invest what one can afford to lose. Otherwise, you might be sleepless and nervous as long as you’re invested in crypto.
Losses can also come from other things than dips in the market; extraordinary factors such as hacks, bugs, and government regulation can mean you’ll lose money. If you are investing money you can’t afford to lose, you need to take a step back and re-evaluate your current financial situation, and reconsider what you’re about to do.
Always pay close attention to BTC (Bitcoin)
Most altcoins (meaning any cryptocurrency other than Bitcoin or Ethereum, although there are some people that still claim that Ethereum is an altcoin) are pegged to Bitcoin. One could compare it with how Asian currencies were pegged to the USD during the Asian Financial crisis. What does this mean though? It means that if the Bitcoin price is going up rapidly, then people holding altcoins will probably sell them in order to move their money to Bitcoin and ride that wave. This means – in turn – that the price of altcoins probably will go down when the price of Bitcoin goes up rapidly.
However, the price of altcoins will probably also go down when the price of Bitcoin goes down, as the holders of altcoins then exit such altcoins to go back into Fiat currencies. But wait, does the price of altcoins ever go up? Yes. Oh yes. The best circumstances for altcoin price increase is when Bitcoin shows organic growth or decline, or remains stagnant in price.
Diversify your crypto investments
General Portfolio Management
In general portfolio management theory, diversification is the key to achieving the optimal risk level. The reasoning is that if you have a portfolio consisting of a number of financial instruments (e.g., stocks, corporate bonds, treasury bonds), you should try to find opposite-pairs, meaning that when one of the asset classes in your portfolio goes down, another asset class in your portfolio goes up. In the long term, the aim is to have a stable return on investment with a lower level of risk than you would have had with only one of the asset classes in your portfolio. In general portfolio management theory, it is also believed that the lowest number of financial instruments one should have in a portfolio is no less than 10-15.
Cryptocurrency Portfolio Management
When looking at a crypto portfolio, however, it is more difficult to find the hedging aspects mentioned above. This does not in any way mean that your cryptocurrency investment strategy should not aim for diversification. Diversification in a crypto-portfolio can be done by investing in different cryptocurrency categories. There are several different ways to categorize cryptocurrencies, but one way is the following: (i) currencies (BTC, LTC, etc.), (ii) platforms (ETH, NEO, QTUM, etc.), (iii) supply-chain (WTC, MOD, etc.), (iv) privacy-focused (XMR, ZEC, XVG, etc.) and (v) blockchain-agnostic (ARK, LINK, etc.).
However, diversification in a crypto-portfolio is more commonly used synonymous with “investing in many different cryptocurrencies”. The reasoning is that if you put all of your funds in one single crypto currency, you take bigger risks, as it is more likely that one single crypto currency goes belly-up and loses all of its value, than it is likely that 15-20 coins do it at the same time.
We at Cryptowisser recommend you to have cryptocurrencies from different cryptocurrency categories in your portfolio, and enough different coins for you to not rely solely on the success of a couple of them.
Greed is not always good
Gordon Gekko’s famous motto is not always the right imperative to follow. If you’re up 100%, good for you. Your success make us happy! However, we urge you to consider withdrawing a certain amount, to make that amount “safe from potential losses”. Sure, you might lose out on further gains on the withdrawn amount, but hedging your risks comes at a price. If you wait too long or try to get out at a higher point, you risk losing profit you already earned or even turning that profit into a loss. Get into the habit of taking profits and scouting for re-entry if you want to continue reaping potential profits.
Do your own research – trust no one
Let’s face it. There are a bunch of assholes out there in the crypto world. People who use every opportunity to exploit less-informed crypto investors. They’ll tell you which coins are the best crypto coins to invest in and claim certain coins will moon, just to increase the prices so they themselves can exit. Due to the highly speculative nature of the cryptocurrency markets today, a good investor will always do his or her own research in order to take full responsibility for the potential investment outcome. Information coming from even the best investor is, at best, great information, but never a promise, so you can still get burned.
FOMO stands for Fear Of Missing Out. In the crypto world, FOMO means fear of missing out on a price increase of a certain crypto. If a coin pumps up extremely quick, it will correct — it’s a matter of time. Speculative pumps are almost always followed by dips. While trying to jump onto a train going full speed sounds like something straight out of a James Bond movie, I’m sure most of us can agree we would probably save some limbs if we just waited for it at the next stop.
Try to learn from your mistakes
We know. This is hard. To try to learn lessons from losses. But trust us on this one, always evaluate the situation and try to figure out why something happened as it happened. Don’t sit in front of a fire place and ask yourself “should I invest in cryptocurrency, at all”? Rather, take that experience as an asset for your next move, which will be better because you are know more now than you knew before. We all start off as amateurs, and we have all lost money throughout our trading experience. No one is perfect, no one wins every single trade. Don’t let the losses discourage you, because the reality is they’re making you better trader if you choose to learn from them.
Set stop losses for short-term trading
For any coins that you are not intending to hold medium-term or long-term, always set stop losses. This is an important part of any cryptocurrency investment strategy for several reasons — the most obvious is mitigating your losses. But more importantly, you force yourself to decide on a point of acceptable loss, and because you now have a reference point, you are able to measure your effectiveness to keep or adjust for future trades. Sometimes, during a market dip, altcoins can plummet, and stop losses can lead to profitability by automatically selling for fiat that you can use to re-enter at lower prices.
ALWAYS double-check the ticker
A ticker symbol is the acronym of capitalized letters (usually 3 letters) characterizing a certain cryptocurrency. As most of you surely know, the ticker for Ethereum is ETH. Ticker symbols are not always universal, however, and may vary from exchange to exchange in rare cases. For example, Bitcoin Cash trades on some top crypto exchanges as BCH, while it trades on others as BCC. BCC is also the ticker symbol for BitConnect, which has been outed as a Ponzi Scheme. If you bought BCC under the impression that it was Bitcoin Cash, you would’ve lost a lot of money. Accordingly, ALWAYS double-check the ticker.
Don’t make a habit of trying to time the market
Trying to time the market is difficult. Within general portfolio management theory, it is argued that a good way to avoid timing the market is to utilize time diversification. Let’s say that you have 10 000 USD, and you want to invest it. You think that the market is at a dip and you want to go in. What you should not do is to deposit all of the 10 000 USD at once, and hope that you have hit a dip. A clever idea in a cryptocurrency investment strategy would rather be to invest 1 000 USD a month. By doing that, it is less likely that you buy high, as the market goes up and down during the relevant 10-month period. By doing that, it is less likely that you buy high, as the market goes up and down during the relevant 10-month period.
When it comes to trading cryptocurrencies, not only is the market much more volatile than traditional markets (where 20%-50% swings in a day is commonplace), but it’s also much more unpredictable. This makes it even more impossible to sell at the top and buy at the bottom. Time diversification could thus be a useful strategy. In other words, you could say that it’s a safer and more profitable cryptocurrency investment strategy to put time in the market, instead of trying to time the market.
If you don’t know what HODL means, you won’t figure it out without researching it either. The acronym is not really possible to decipher without research. It stands for Hold On for Dear Life and means that you should not sell in a bear market, rather you should hold on and wait for the market turn that (according to the HODLers), will eventually come.
The person commonly credited as the inventor of “HODL” is elux, at bitcointalk.org. In a thread started by GameKyuubi on 18 December 2013 where the subject was supposed to be “I AM HOLDING” but was misspelled to “I AM HODLING”, elux quickly responded a few minutes later “HODL!” and the rest is history. Who came up with the idea of the meaning of HODL being Hold On for Dear Life is, as far as we know, still unknown. For more information on HODL, HODLACL and the origin of both such expressions, read this blog post.
HODL is a sensible advice. Simply hold onto your investments throughout the highs and the lows, and avoid day trading. As the markets grow over time, so will your investments, don’t get greedy and try to make multiples of your investments too quickly.
There are of course thousands of other lessons to learn when trading crypto, but the above are the items we – as your number on trading cryptocurrency guide – think is most important for you to remember. Now use our Exchange Finder to find out which site is the best cryptocurrency trading site for you and get going!
This guide is also simplified with more lovely pictures and GIFs in this blogpost.