Trading or investing in any financial market can be a profitable but also dangerous endeavor. It requires knowledge, skills, and experience no matter the market traders are employing.
Of course, gaining experience often comes with taking (sometimes) significant losses. However, it is an advantageous position to be in where one can learn from the experience of a trader with a long history in the field to avoid making these same mistakes themselves.
1. Diversification Is Key
The topic of diversification – otherwise known as the not putting all of your eggs in one basket strategy is a tried-and-tested method to minimize risk when it comes down to any investment strategy method.
Putting all of your funds into one (or very few) assets might be devastating in case the price takes a critical hit. In an event like this, the entire portfolio will suffer, and many traders find themselves in a position where they are unable to recover from such a blow.
Diversification means spreading the risk between numerous assets. It can be dangerous if you neglect to diversify. Even if you believe in Bitcoin (BTC) and crypto as a whole, it is perceived to be a generally unnecessary risk to put all of your wealth only in one asset class.
Diversify your finances accordingly and make sure not to spread yourself too thin, either.
2. DYOR = Do Your Own Research
DYOR is short for do your own research.
The cryptocurrency field is considerably young. While the stock market has existed for over a century, digital assets emerged with BTC’s creation in 2009 and are yet to see mass adoption, despite the 2017 initial coin offering (ICO) boom.
As such, many experienced professionals and casual speculators in the field will experience significant growth in the upcoming years, and investors should do comprehensive research to find the most profitable projects.
These are projects run by companies likely to become the next Amazon or Google 20 years from now – investors have to be more patient now than ever and selective to make sure they are getting involved in the projects with staying power.
3. Buy The Dips (Or Buy When Everyone Else Is Selling)
There is a famous saying in the investment field that advises people to buy low and sell high. To buy an asset low (a cryptocurrency, in this context) means to purchase it while the price is depreciating and not the other way around, which is typically what the majority does.
Yet, it is not as simple as it sounds. Human nature and emotions are susceptible to panic – this urges investors to sell their assets when prices are plunging before they buy back in due to FOMO (fear of missing out) when the prices are once again skyrocketing.
Accumulating Bitcoin, Ethereum (ETH), or any other asset class that you as an investor believe in while the prices are dropping is vital for long-term success.
Finally, after a bubble pops in the cryptocurrency markets (like in 2018, for example, or the Coronavirus crash last March) and prices are severely below the trending average – I accumulate as many of my favorite coins and tokens as I can for staking and cold storage.
Tuck it away, and forget about the price.
4. Risk Management – Almost No One Gets Rich Quickly
Risk management is the most important thing. Many traders get caught up, and most of them lose money because they do not think about the risk – they only think about ways to get rich quickly.
Thus, to accomplish better risk management, investors should also employ a famous narrative – to invest using funds they can afford to lose. Consequently, if the price plunges, it would not disrupt your investment plans or trading strategy and cause you to panic sell while taking a massive loss.
And finally, you might ask yourself:
Which cryptocurrencies have a greater chance of breaking their prior all-time-highs or setting the greatest new one?