How it all starts
You sit with a friend in the pub and after the third beer, you have already discussed all topics such as recent hassles with your wife, gossips or perhaps a difficult exam that awaits you at the end of the semester. You watch each other when suddenly your friend says:
“Hey dude, did you hear about the Bitcoin already, they say that he’ll replace cash once and the banks won’t have anything to eat”
“I did, but I think it will be prohibited soon” you answer incredulously because so far the stuff you read about it was some fake news on the internet, but you are trying to look informed.
“I bought a little few months ago and I already doubled the investment.” You watch him in disbelief because until now you thought only a talented mathematician could make money trading.
Life goes on, you go to job, but Bitcoin is still in your head. So you start to regularly monitor its price and you see how it grows every day by 5% and you blame yourself as you should have listened to your friend’s recommendation.
Next few weeks you count how many dollars you have not earned yet and FOMO is not far away. The market continues to grow, Bitcoin is rising and even your hairdresser starts recommending you buying Bitcoin.
It’s not long before you send money to Coinmate and buy your first Bitcoins. Right after the weekend, you look at the portfolio’s status and you are 20% up, how easy it is! So you buy much more and you think you will never have to work again.
However, the following month a dump is finally here and you are in a slight loss. You do not care, because you are planning to sell Bitcoin at $ 50,000. But Bitcoin is falling and you are in 60% loss within 4 months. It has been too long and you choose to withdraw the money and you tell yourself that its time to invest in something else that has real value.
Is this story familiar to you? This development occurs to most beginners who invested in cryptocurrencies. Today, we’ll give you a few tips on how to avoid this scenario.
Trader vs. Investor
Before you make your first buy you need to know your why. If you have entered the market because you want to make quick money, you need to know something about market dynamics and at that moment you are not an investor but a trader. If you believe that cryptocurrencies will have a positive impact on the economy and will serve mankind in the way they were designed, you invest. This decision greatly influences our view of the current price. Where a trader closes a loss, the investor sees the opportunity for a cheaper investment. In practice, these two groups follow completely different indicators that the market offers. While traders carefully monitor the overbought RSI regions or trend lines of individual currencies, investors follow the teams working on the project and implementing their system into everyday life.
Investing is a long distance run
Cryptocurrencies won’t change the world in one day, so why would you do your investment today? It is recommended to divide the money into several parts. If you initially have the capital you want to invest in cryptocurrencies, divide it into 8 parts and invest only one eighth each month. If you don’t have the money at the beginning and decided to invest in crypto, determine the amount from your salary you invest each month in cryptocurrency and follow this procedure for whatever the price is. You will see that in ten years you will have a much better appreciation than some retirement savings.
If you divide your investment into multiple parts, you are most likely to buy Bitcoin at its real price it has in that period. Smaller sections can be affected by manipulation.
The next step is to determine the price at which you are planning to sell the desired fraction of your investment. This could be a price level ($ 50,000) or % capital appreciation. A popular practice is selling some fraction after an exponential growth and then buying it after the market dumps and starts to range. Each market has several stages and those should be recognizable easily even for the absolute beginner. (More about the market phases in the next article)
The main rule is: Never borrow money to invest in cryptocurrencies!
Each market goes through the phases of Accumulation, FOMO, Distribution, FEAR. For a long-term investor, it is best to invest in the accumulation phase, when no one trusts the asset and sells his positions undervalued.
Now, when you know how to time your entries, we’ll talk more about the base pillars of the portfolio.
It is recommended to build your investment in a way that it can withstand the great fluctuations of the market and you can sleep peacefully. If the portfolio is built correctly, a temporary down of one project should not significantly affect the rest of the investment, because the other currencies cover the losses.
The cryptocurrency market is still very young, and all projects are depending on the first currency that was created, Bitcoin. Bitcoin determines what is the overall mood in the market. If Bitcoin is falling for a long period of time, there will be very few currencies that will go against this trend. Therefore, it should cover at least 50% of your portfolio, because, without it, other currencies would hardly survive, despite the fact that they may have a much larger technological impact for mankind in the future.
These alternative currencies need to be considered as startups, and many of them won’t survive in the market, just as we are used to in standard business. We will allocate the money here accordingly to in what we believe the most with considering the currency marketcap. The larger the currency marketcap, the more stable should be its price development.
Warning: The information in this article is for reference only and is not an investment recommendation. Trading cryptocurrencies, options, derivatives, and other products are risky and may result in the loss of your entire capital.