Cryptocurrency has caught the attention of most of the developed world the last year and many sign up daily to buy, hold and trade virtual currencies. It is not uncommon to see coins gain 20% to 50% in a day even an hour but you could also lose that much. Itâ€™s a harsh fact but many traders are inexperienced and uninformed, which can lead to errors in judgement.
There are over 1000 cryptocurrencies and everyone wants to know which coins have the greatest potential for monetary gain.
Traders should conduct a fundamental business analysis and read any prospective companyâ€™s white paper. There are also benefits to monitoring a particular coinâ€™s social media accounts, eyeing the level of community engagement and evaluating the businessâ€™ roadmap and future development strategy.
There are typically three different trading strategies you can implement:
- HODL:Â Can be referred to as â€śposition tradingâ€ť, the premise isÂ to find a good entry, buy and hold on for at least 2 years+. Hold on to your cryptocurrencies, resist the urge to sell and invest for the long term.
- Mid-term:Â Known as â€śswing tradingâ€ť Investing of this nature is typically from weeks to months. Many mid-term investors will invest and then cash out their principal investment and ride these coins all the way up for free. Midterm means that if bitcoin skyrockets you may still liquidate your altcoin positions and ride the gains where you can get them.
- Day trader:Â Traders usually have one intention â€“ use other coins and margin trading to increase their cryptocurrency positions. Traders will set sell targets of 0.25% to 30% for every coin that they sell and stop losses to protect their investments. You need the relevant systems and software, usually at a price of $2,000 subscription a month, a sound understanding of technical analysis, a developed unemotional state of mind and a large amount of capital to take large position sizes for small gains in the market. You still can’t really short cryptocurrencies too.
Below are the frequent and needlessly obvious mistakes investors make:
Chasing pump and dump schemes
This might sound obvious and actually quite attractive but you need to keep one thing in your mind at all times:
No one ever buys at the bottom and sells at the top. One of the main traits of a bubble is that people donâ€™t realise itâ€™s a bubble. Yes, you can make good money quickly but eventually, an asset’s value reaches a plateau and even an understanding that its inherent value is overvalued and people want to convert that into cold, hard cash and the sell-out or dump starts. Understand why you are investing, how much you want to make and in what time frame and donâ€™t get greedy.
Investing in coins without proper research
There are loads of coins, over a 1000 and a lot more since December. To be honest, most are scams and if you are chasing the latest or newest to pump and sell them in many ways you deserve to lose your money. What is critical is to validate the source of information, double check the credibility and cover all bases of research. From company websites, attendance at conferences, social media accounts and white papers are all the least you can do as part of the initial stages of investment.
Getting information from rumours and speculation and not coins and their teams themselves
Most people have invested on the back of tips or recommendations from friends, family, the media or dodgy websites making ridiculous predictions. Sure, listen, discuss and consider all avenues and sources of information, there may well be good tips. However, validate and check ever source especially in the written, online media. Conduct due diligence as per paragraph 2 and be sceptical. Most people what to have their invested coins bought to inflate the price.
Panic selling on dips and rises of bitcoin
Itâ€™s a matter of fact that Bitcoin is the USD of the crypto world. Investors, still to buy other coins still require to use their fiat currency to buy Bitcoin or Ethereum to then purchase their desired smaller coins. As a more exotic currency would be pegged to the US dollar, this is happening in the crypto market. It imperative to not let small changes and jolts in the market totally affect your decision to trade the smaller coin.
Giving other people your private keys or losing them
In a world where this is the greatest advancement in tech i.e. the blockchain, itâ€™s ironic that the safest way to store your purchases is to write it down on pen and paper. Write it down clearly, in several places but donâ€™t put â€śMy 100 Bitcoinâ€ť or anything equivalent next to it. There are several storage options available from cold to hot storage coverage in previous articles. Certainly, donâ€™t tell anyone and make sure your account has the necessary security settings and 2-factor authentication.
Not diversifying your investment to protect your portfolio
Itâ€™s very simple, buy a range or well-researched coins, spread your risk exposure across these and keep some cash (or bitcoin) aside to either top up a good investment or have the ability to buy more of the coin cheap if it falls but you still believe in its potential. Ideally, use several different platforms as well for multiple coins. As always, research is number 1. We have run articles on best platforms to use and why or wallets that have been highly rated.
Having an unclear investment strategy â€“ trading, holding, etc.
See above in the introduction but understand what you are doing, why you are doing it and your lifestyle. If you can only check and trade once a month then you have to be a Hodl trader. If you have 7 days a week spare and lots of months to purchase a terminal then you could be a day trader. If you want a new bathroom, cash out when that has been achieved and donâ€™t get greedy. Know who you are and when the right time for you to call it a day and come out of the position.