Those who trade digital currencies know that price movements (up or down) are commonplace, and unless you have direct contact with Elon Musk or other market gurus, it’s hard to judge when to get in or out without getting burned. However, while price pumps and pullbacks are mostly unpredictable, there are a few basic rules—here broken down into mistakes to avoid—that can help day traders or aspiring billionaires maximize their chances of profit. Here’s what they are.
1. Don’t define your investor profile
First and foremost, anyone who wants to play crypto roulette should define their investor profile. There are three types of investors: conservatives, also known as hodlers, who are not afraid of risk and bet on coins that they consider reliable in the long term, regardless of the current price; moderates, who mix different types of strategies in their portfolios; and traders, who ride on price fluctuations and aim for quick profits, even small ones.
Understanding which jacket to wear is the first step to avoid getting hurt, and allows you to develop coherent strategies with a good chance of long-term success.
2. Not having a clear investment plan
The second step, linked to the first, is to avoid jumping into the fray without a reasoned investment plan, which takes into account bullish cyclical factors (such as the halving) and the problems to avoid. In 2021, cryptocurrencies are a crowded financial sector, and only those who have set their goals before the start will be able to avoid running out of steam at the end of the race.
3. Not studying bitcoin and cryptocurrencies
To complement the first two steps, an investor should never start investing their capital without knowing the technological basics of bitcoin and cryptocurrencies, such as the blockchain network, or without being familiar with the logic of online trading. It is not surprising, however, that a large portion of retail investors have jumped on the cryptocurrency bandwagon before doing their homework, with the ambition of making easy money. This is wishful thinking.
4. Don’t be patient
As we have said, Bitcoin and other cryptocurrencies are not fiat currencies backed by central banks. Volatility, which can even lead to 30% pullbacks in one day, is the main drawback of the cryptocurrency segment. It is therefore essential to be patient when the wind blows, otherwise you will lose your motivation and your money.
5. Not diversifying your portfolio
Finally, being so volatile, neither Bitcoin nor other cryptocurrencies should be the only investment in your portfolio. One solution could be to focus on different tokens, from BTC to Altcoins like Ethereum or Stablecoins like Tether, pegged to the US dollar. Or, option b, protect your portfolio with defensive stocks, hard assets like gold or silver, or even government bonds issued by strong countries, from the United States to Germany.
