Cryptocurrency has many merits, and while it can be quite fun, new investors must not forget that these are very volatile assets. It's always fun to watch the prices run up and to think about how much money you'll be able to make, but you must remember that these prices also go down.
For this reason, it's important to have a defined strategy before you go into any cryptocurrency trade. Making spur of the moment emotional decisions is typically a fast way to lose your hard-earned money. In this article, we'll look at a few strategies that investors of all walks of life and experience levels can utilize.
If you've spent any time bumming around cryptocurrency boards such as Bitcointalk or Reddit, then it's likely you've heard this at least once or twice. While this typo has turned itself into the biggest crypto meme, it is still sound advice. Almost everyone who has made significant money in cryptocurrency has done it by buying and holding. Some of these traders have held their assets for years in order to achieve the gains that they have.
If you don't really have the stomach for day trading, then this is likely your best bet for making gains as a beginner. While this method could probably work with any asset, as long as you're willing to hold long enough, it's best to buy something that has recently taken a downturn and is currently sitting at an attractive price.
As long as the project behind the asset looks solid, then it's ideal to buy a recently beaten down coin, and then wait for it to appreciate. However, don't buy just anything because it looks cheap, make sure that you understand all of the coin or token's fundamentals.
This is by far the easiest cryptocurrency trading strategy, and it will likely appeal to those who don't have time for anything else. Purchase your assets, store them in a secure wallet, and then forget about them. Try to avoid checking the price every day if it's giving you anxiety, as this may cause you to respond emotionally and to sell before your asset has matured.
Similar to the buy and hold method, this strategy was traditionally championed by Warren Buffet in the original finance market. He's what you would call a value investor or someone who spends their time looking for underappreciated companies to put his money behind. This can be a valuable strategy if you don't mind doing the research to support it, but it is a little more actively involved than the buy and hold method.
As a value investor, it's your job to search for well-structured projects that are down on their luck or not yet matured. These events can happen for all sorts of reasons, including some bad news that has temporary effects, or perhaps even missing an important deadline which disappointed their investors.
The point is, that these are temporary issues, and the emotional reaction of the sellers may not have been warranted. It will be up to you to decide whether or not the project has merit, but if you take some time to research it, that information should be easy to find.
The best place to do this is often in Telegram or Discord channels. Not many investors take advantage of these pathways, and they often reveal behind the scenes information that does not always make it message boards immediately, as you need to be closely following the project to find it.
When searching for a potentially undervalued project, you'll need to ask yourself many questions regarding the asset. Investigate all of their material, and make sure that you fully understand the project.
What problems does it solve? Is there a market for this? Do they have any competitors? Do they have a product yet? What about valuable partnerships with other companies? What is their marketing plan? What about the coin's supply, is it too large? These are certainly not all of the issues that you should make yourself aware of, but it's a good start.
This method is particularly attractive if you are still young and without much income to dedicate to cryptocurrency. It's perfectly reasonable to find severely undervalued projects for a few cents per coin if you do your homework.
While you can get some projects even cheaper than that, it's often hard to get in that early, especially for a beginner. There's also the fact that a project that is this early in its development has not yet fully formed its own ideals, and that can make it hard to evaluate whether it actually has a future.
In cryptocurrency, what goes up must come down. This is more of an after-party strategy, but that doesn't make it any less important. When playing games in volatile markets, it's important to know when to take profits. While an asset surging 200% overnight is not uncommon in cryptocurrency, it's still not normal. This price fluctuation, while welcome, is not sustainable. In almost every case, they will correct themselves, and your capital will evaporate.
Even if you truly believe in the project's future, most people will advise you to take some profits. Some have even recommended selling half of a security every time it doubles in price, however, the exact percentage that you utilize will be up to your own personal preferences.
What will you do with these profits? Well, just because you take profits from an investment does not mean that those profits are wasted. You can always utilize these in other ways. For example, you could diversify your portfolio.
If you've made substantial gains, this is likely a good idea anyway. Some traders may prefer to place some of this capital into larger cap coins, which may appreciate slower but will also have more protection from market downturns than small-cap assets would.
You could also choose to remove this money from cryptocurrency altogether, to create a more solid foundation for your portfolio. Storing it in your native currency is the obvious option, but you could also try investing in precious metals if you'd prefer.
In any case, storing money outside of cryptocurrencies has another very useful perk. If the market does take a nosedive, you'll be in the right position to buy back in much easier than those who have all of their money tied up in the market. Investors with the foresight to do this the last time around picked up many high-quality projects for rock bottom prices.
If you seem to be buying things as soon as they decide to go down, it can be disheartening. Some people just have bad timing. However, if you do really want to hold the project in question, then there is another crypto trading strategy that you can try called cost averaging.
Let's say that you have bought into a security, but the price has recently taken a devastating tumble. This is a project that you really believe in, and you think it will recover. So, instead of panicking and selling your coins or tokens, you buy more.
This is counter-intuitive to the way most humans think, but it's important to be able to recognize opportunities when investing, and it's even more important to not let emotions dictate your decisions. Cost averaging is the ultimate way to make up for a costly mistake that you've made.
By buying more of an asset that has recently fallen, you not only strengthen your position, but you also lower your average entry price. That means when both of your buys are averaged in together, the total price per coin that you paid goes down to more palatable levels.
For investors that are not really interested in actively trading dips, but who do wish to acquire more and lower their buy-in price, this is a good option. If you want to purchase a higher market cap coin, but you don't have enough capital to buy all of the coins that you want at once, this could also help you to achieve your goals.
Cryptocurrency generally has ups and downs over periods of weeks or months. If you're on a budget, set aside a certain amount of money per month for buying. When you see a dip in the asset that you want to trade, buy in on that depression. This will allow you to add to your portfolio, while also lowering the amount you originally paid.
In closing, the crypto sphere can be intimidating to new investors, but these cryptocurrency trading strategies for beginners should have you well on your way to making sound investments, no matter your experience level. Just make sure that you don't jump into any investments without first doing all of the proper research first. Avoid anyone that promises to make you rich overnight, and remember to take a moment to fully evaluate the situation before you find yourself regretting your trading behavior.