In addition to a detailed analysis and assessment of potential investments, you should also set certain rules and objectives when investing in crypto. In this article I have listed my 8 rules:
1. Only invest what you can afford to lose
Due to the painful correction of the crypto markets in January 2018, many new investors burned their fingers. There were stories on the internet about destroyed monitors, smashed laptops, broken relationships and even worse, stories about people who took out loans to buy Bitcoin near the top. When I thought about writing this article, my first question was which rule would be the most important.
I quickly concluded that someone who just reads through this blog post very quickly or closes it again after a few moments should at least remember this one thing: Once your money is exchanged for cryptocurrency, it is gone! There is absolutely no guarantee that you will ever get it back (the same applies to banks and stocks, but that’s another story). In fact, losses can not only come from making bad decisions, but much more uncontrollable factors such as hacks, bugs, or new regulations could also make you lose all of your investment.
So, don’t act out of desperation (use of credit cards whose balance you can not offset, taking out loans without steady or too little income etc.) and only invest what you can afford to lose.
2. Do not get greedy
After talking about the most important rule, we will now take a look at the hardest one. No one ever lost money by taking profits. I am not an active trader. My strategy is mostly long-term investing (90/10). However, if I have learned one thing in $Crypto its that you have to take profits and keep looking for new opportunities to re-enter. Let’s say you haven’t set a specific target for an investment and it already went up 100% over the last month, this would be an excellent opportunity to secure some of your profits. If you wait too long to exit at an even higher point, you risk losing the profits you could have easily taken out. This is especially important for long-term investments, sell a part of the position after a bull run and waiting for a better point to re-enter.
3. Keep an eye on the Bitcoin price
Most Altcoins (all cryptocurrencies except Bitcoin) are highly dependent on the Bitcoin price. In many cases, their price movement shows a negative or positive correlation to that of Bitcoin. A sharp rise of the Bitcoin price may cause Altcoins to lose value as traders try to close their positions in smaller coins and quickly move their money into Bitcoin to take advantage of its rise. However, a sharp fall in Bitcoin’s price can pull down the smaller coins as investors switch their cryptocurrencies to stablecoins or directly into fiat currencies. The best time for growth in the Altcoins are periods in which Bitcoin shows organic growth or stagnates in price.
4. Never put all eggs into one basket
Diversification is the key to long-term success, especially in an immature market like crypto. While the potential for profits increases with the amount invested in a single coin, so does the risk of being wrong and losing your investment. Personally, I am very optimistic about the crypto market as a whole and I believe that we are still at the very beginning. Therefore, I assume that the total market capitalization will increase dramatically over the coming years. The safest way to benefit from the growing crypto market is a broad but reasonable diversification (if you are interested in this I could write an article about it) that will allow you to make more risky investments and, on the other hand, capture the overall growth.
5. No FOMO!
FOMO stands for Fear of missing out. The fear of missing something is probably one of the first feelings that newcomers to the crypto market are experiencing. It may even be the reason why they are here. However, those who are trapped in fear can not make rational decisions. To avoid this feeling, or rather to learn how to deal with it, requires self-discipline. There is no exact formula for overcoming this problem, you have to train it, learn to be calm and objective. If you can overcome the FOMO and stay patient with your buys and sells, you will become very successful, but it is a tough process.
The combination of greed and FOMO has been the main driver of the Bitcoin Rally in late 2017, prompting many new investors to enter near the ATH ($20,000) of Bitcoin. Even in the crazy world of cryptocurrencies, there will always be a correction after a „pump“ … it’s only a matter of time. Stay patient.
6. Do not be blinded
Wherever there is money to be made, there are people who exploit the credulity and inexperience of others to enrich themselves. These people are telling you about „solid“ investments that will multiply their value in no time at all, just to raise the price and sell their own positions, leaving behind the naïve investors who are then waiting to break even for a very long time or even forever.
A good investor relies only on his own research and analysis and thus takes full responsibility for his decisions. Information, even if it comes from the best investors and traders in the industry, is, at best, just information, not a promise or even a guarantee for future profits.
7. Categorize your investments
As you research new projects, you may find yourself encountering a variety of different types of coins. You will come across those that have an excellent team, a clear vision, a great product or even some successes in their books. Great! Hold these coins the medium or long term, do not let short-term volatility affect your decision, everything in your mid- or long-term portfolio shouldn’t be untouched for a while. Make a clear distinction between short-term trades and your long-term investments.
8. Learn from your mistakes
Making mistakes is completely normal, especially at the beginning of your experience with something new, just do not let them evolve into complete defeats. Evaluate each situation and try to find out what exactly led to the mistake and what you need to do differently next time. Take this experience into your next steps, which will be better than the previous ones, since you know more this time. Nobody is perfect, nobody closes every trade with a profit. Do not be discouraged by losses, accept them, learn form them and you will become a better investor.
Hope this helps you with defining your own rules for investing! 🙂
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