If there is one fact regarding trading that should not be ignored, it is that you should come to terms with and accept the fact that you will never be able to time your buying and selling perfectly. Seriously, what is the chance of you being able to purchase when the price is at its real low and then sell when it is at its exact top? Add to that the need to put sufficient capital into the trade to make some kind of dent in your wealth and you can see how hard it is. Trading is by no means cut and dried because there is not one single path to take. Each trader has their own goals when they are trading and investing and cryptocurrency is no different.
If you have been involved in trading then you will already know what it is like to lose on a trade that didn’t work as expected or one that worked fantastically but didn’t give you the position size you desired. The best you can do is live in the now and forget about the past – you can’t change it anyway and hindsight is such a wonderful thing. Yes, it would have been wonderful to have invested in Bitcoin when it was at a fraction of a cent and then cashed out when it reached more than
$2500, but that, sadly, just isn’t how things work. Think about it the other way – you buy into Bitcoin when the price stands at $600 and then it plummets to $100, you panic and sell out – that would be very painful. We can’t do anything about the past and there is no way we are going to predict the future. So, all can do is learn from our mistakes and use that knowledge going forward.
The following are some top tips for those new to investing in cryptocurrencies.
Understand Just How Powerful Cryptocurrency Is
We tend to look at this the same way as we do when we invest in stocks but cryptocurrencies are commodities, not stocks. Yes, both have a price but they are very different with the only real similarity being the exchange. We already know that the blockchain technology that backs Bitcoin is being studied for the potential to change retail and institutional capital and the decentralized nature of cryptocurrency means that there is no way to shut it down and no way to easily manipulate it. When people ask why you want to invest in
cryptocurrencies like Bitcoin, you can tell them that it is the safest investment anyone can make and that you believe in the future – for as long as Bitcoin capital continues to flow, its potential will continue to be realized.
Always Have a Strategy
How often are you going to buy and sell? There are those that just want to be day traders but it has already been shown that your best bet could be to hold. The rule of thumb is that the longer you hold, the less risk there is and this rule works for cryptocurrency investments as well. However, sometimes it will be better to cut loose and get out and one of the indicators for that is when unforeseen structural issues cause declines in price. Always make sure you have a strategy in place that covers all eventualities.
One of the ways to cut risk in sudden changes with Bitcoin and other cryptocurrencies is to average the dollar cost of your purchase. This takes the sting out of sudden changes in pricing and cuts your reliance on a single entry point. Increasing your investment over time you cut out the need to buy and sell too often. Cryptocurrencies are here to stay so there is no need to go all out and fill the coffers straight away – unless of course, the prices drop to all-time lows!
Hedging Your Bets
Some exchanges are happy to allow short orders – this lets you place a bet on either side of the price movements. For example, you could go 10% short and 90% long which would assume you have far more confidence in the long run. This kind of strategy can cater to all risk levels.
Never forget about the power of the altcoin. Bitcoin is not the only cryptocurrency in the world and the altcoins are not quite so prone to the public speculation. They have much smaller market caps which are more prone to bigger pricing swings but each one has its own purpose and it has an intent. The risks of investing with altcoins are bigger but the rewards can also be much bigger too. Some, like Ethereum, are more stable while some are at a higher risk of fluctuation so allocate your percentages per your own risk tolerance. For example, you could put say 50% into Bitcoin, 30% into Ethereum, 15% into DASH and 5% in ZCash
There are plenty of rules and tips for investing but, on the whole, where cryptocurrency is concerned, you can get away with following the same guidelines as for other investments.
In our last chapter, we are going to take a short look at some of the terminology you may face when dealing with Ethereum, the blockchain, and other cryptocurrencies.