This week I would like to share with you some tips, I have learnt along the way in trading crypto. First of all this blog is more targeted to those who are not already millionaires. It is more for those who are trying to make their money do a little more than it would sitting in the bank. A few things I would like to say, is that before you start to consider what I am about to say. I would suggest you consider diversifying your investments. I am not all in on crypto.
My journey started while I was studying to become an engineer. I had little income at the time, as I was working as an undergraduate and my income was not the greatest, however, it was more than enough for me to live on, so I decided to start putting my money to good use.
Step 1: Diversify your investments.
The first thing I started doing was contributing to my retirement, at roughly 10% of my salary. This was invested in ETF’s, which diversified my risk. It was also a hedge against the crypto market.
Cryptocurrencies are highly volatile and you should not be investing all of your net worth solely into cryptocurrency unless you have a boat load of experience in this space. I work off a 90:10 split with 90% being allocated to stock and real estate and 10% to cryptocurrencies.
So if you do not have any real estate you should be investing 90% of your money toward mutual funds (S&P500 or similar established markets).
Step 2: Start to understand the principle of compound interest.
Albert Einstein was quoted as saying “compound interest is the eighth wonder of the world”. A big statement you may say? Well to elaborate on this, if you had $1 and doubled it 30 times, you would have just over a billion dollars. The hard part of that equation is actually accomplishing it. A simpler way of looking at this is, say you now have $1000. If you made 10% on that $1000 over 30 trades (ie.. you purchase a cryptocurrency and trade it for a 10% gain and repeat 30 times) you would have turned that $1000 into $17,449.
As you can see, compounding is very powerful tool in generating wealth.
Step 3: Spread your positions.
A position is a nice trading term, that stands for an amount owned and held for a particular asset (namely a cryptocurrency). To spread your positions, means to break up your portfolio into smaller increments. Instead of you buying $1000 worth of only Bitcoin and trying to trade that for 10% profit. You should break the $1000 up into say 20 positions of $50 for various other cryptocurrencies. This will give you more of a chance at some trades going up on a given day. It also helps you recover should you invest in something that completely crashes (and this happens in the crypto space).
When you are happy with your return on initial investment for a given position, you can then trade and move into another position. If you have some positions that have gone down, you may even consider reinvesting back into those trades, as they could be closer to a swing in an upwards direction. This also needs to be considered with some further research into the losing projects positions to make sure there is not any underlying reason for the lack of upside performance.
Step 4: Trade less in bear markets.
In bear markets, which can last a long time in crypto; you should try and just hold quality projects or jump out and wait for some upwards movement. Day trading is something you should only consider if you know what you are doing.
It is difficult to time markets unless you are fully immersed in what you are doing. This took me some time to get good at.
I started off not really knowing what I was doing and not really understanding the space. But overtime, I started to notice patterns in the market. These patterns would depend on certain news, hype amongst crypto influencers, project upgrades, roadmap milestones being met, tokens being burnt among others. Once I started to see the effect the abovementioned events occurred on the market, I started to become more successful with my trades.
Step 5: Stake your crypto!
If you are not familiar with staking, you should be! Staking is where you allocate your crypto to a staking pool, so that it can be used to provide liquidity on transactions. Every time a transaction is made on that network, you will receive a share of the transaction fee. So overtime you gain more and more crypto.
There are two ways you can stake.
The first is a liquidity pool. You need 2 different crypto’s to do this, you stake one against another.
The second is just staking to earn more of the same crypto.
Either way if you purchase tokens that are solid and go up in value you can earn interest on these projects through staking and this ties in well with step 2.
Step 6: Only invest in projects you believe in!
This to be honest is probably the most important of all my strategies. The reason it is so important, is the price fluctuations in the crypto space. You get flash crashes that can send the market in to free fall. You can have bearish seasons that can see up to 80% loss in value for Bitcoin and 90% for Altcoins. If you buy some meme coin that has nothing to add to the world other than satire, it makes having diamond hands even harder.
Invest in projects that have a lot to offer the world, from a technical and utility strong point.
If you don’t know how to vet projects, stick to projects that are listed on major exchanges like Binance or Coinbase. They generally do a lot of background research before listing coins on their exchanges. It does not guarantee, but it is better than buying coins off an exchange that will list anything and everything.
I would like to know if you think there is anything I have missed?
Once again, thanks for taking the time to read my latest blog!