Beyond the Tutorial – 10 tips for trading cryptos
If you are just now thinking about investing in cryptocurrencies, you
may be asking yourself one simple question – Why now? Yes, 2017 was the
big appreciation year, and Yes again, the asset bubble that formed did
burst in early 2018, but the future does look bright, as 2019 makes its
debut. “Crypto Winter”, as it has been called, was a long, drawn-out
bear market decline that lasted for the balance of 2018, but it appears
that a strong support level has finally formed, as investors jump back
into the fray
.
Bitcoin, the leader of the crypto pack, is hovering around $4,000, as investors muse about the next direction, whether south or north or ranging for a bit. A number of positive developments are on the way, many designed to serve large, institutional investors, which want more liquidity, less volatility, more secure protocols, trusted custodial services, and monitoring software to prevent price manipulation.
A majority of crypto exchanges have these enhancements in their systems development pipeline, but a few new entrants, like Bakkt for example, will already have the necessary tools and features that banks and investment houses expect. Fidelity Investments will also provide many of these services, as well. Combined with other blockchain developments, 2019 looks to be a pivotal year for the crypto ecosphere.
Investment analysts also see good things ahead, but after being burned over the last twelve months, unless you were a professional that shorts for a living, the outlook is one of cautious optimism. As for an entry point into this topsy-turvy asset class, one could not ask for more. The primary thought to keep in mind, however, is that cryptocurrencies have already gained a reputation for being the most volatile asset class in history.
Volatility, however, and opportunity go hand-in-hand, as long as you manage market risk appropriately. Forget about any seminars that you may have attended that have stressed that risk should be avoided. Risk can never be avoided, but it can be managed to an acceptable level, as long as you are aware of how it behaves. In the crypto world, volatility and liquidity risk are givens. Risk management techniques, as you may have learned in other investment arenas, will ensure that you return another day, after the market may have turned on you or a losing streak came your way.
As every disclaimer about cryptos will warn you, this arena is high risk, and as such, you must approach the market in a disciplined fashion with a detailed, step-by-step plan of attack and only after investing hours of practice on a demo system to fine-tune each step. Seek guidance from a veteran trader, if possible, but, if not, then here are ten tips to help you on your way:
1 – Are you a trader or an investor?
.
Bitcoin, the leader of the crypto pack, is hovering around $4,000, as investors muse about the next direction, whether south or north or ranging for a bit. A number of positive developments are on the way, many designed to serve large, institutional investors, which want more liquidity, less volatility, more secure protocols, trusted custodial services, and monitoring software to prevent price manipulation.
A majority of crypto exchanges have these enhancements in their systems development pipeline, but a few new entrants, like Bakkt for example, will already have the necessary tools and features that banks and investment houses expect. Fidelity Investments will also provide many of these services, as well. Combined with other blockchain developments, 2019 looks to be a pivotal year for the crypto ecosphere.
Investment analysts also see good things ahead, but after being burned over the last twelve months, unless you were a professional that shorts for a living, the outlook is one of cautious optimism. As for an entry point into this topsy-turvy asset class, one could not ask for more. The primary thought to keep in mind, however, is that cryptocurrencies have already gained a reputation for being the most volatile asset class in history.
Volatility, however, and opportunity go hand-in-hand, as long as you manage market risk appropriately. Forget about any seminars that you may have attended that have stressed that risk should be avoided. Risk can never be avoided, but it can be managed to an acceptable level, as long as you are aware of how it behaves. In the crypto world, volatility and liquidity risk are givens. Risk management techniques, as you may have learned in other investment arenas, will ensure that you return another day, after the market may have turned on you or a losing streak came your way.
As every disclaimer about cryptos will warn you, this arena is high risk, and as such, you must approach the market in a disciplined fashion with a detailed, step-by-step plan of attack and only after investing hours of practice on a demo system to fine-tune each step. Seek guidance from a veteran trader, if possible, but, if not, then here are ten tips to help you on your way:
1 – Are you a trader or an investor?
The first question you have to ask yourself is: “Do you want to be a
trader or an investor?” Investors tend to put their money on the line
for long periods of time. They are willing to ignore bad times when they
come because they understand that a good time will follow. They seek
value for the long term, as well, and have been told by their investment
advisors that it is a waste of time to attempt to time the market.
Traders do not necessary violate this maxim, unless they try to pick
bottoms and tops of the market, which, as any veteran will attest, is a
fool’s game. Not everyone, however, is cut out to be a trader. It takes
nerves of steel, and you must adhere to your disciplined plan at all
times. If not, your mind will play tricks on you and undermine your
decision-making process, usually at just the worst time, too. Practice
sessions may guide your choice.
2 – Only invest in cryptos capital that you are prepared to lose
Investing or trading in cryptocurrencies is a high-risk endeavor, and
for that reason, your allocated investment capital should be money that
you can do without. If you set money goals each month in order to pay
rent or other expenses, you might be putting too much pressure on
yourself, pressure that could again stir your emotions and mess with
your mind. A corollary may also be to never bet the ranch. Cash
management techniques ensure against this practice, but step up your
bets, if and when you encounter a strong trend, whether up or down.
3 – Ignore the ubiquitous industry “noise”
The crypto arena is the hottest investment sector in the market at
present, imbued with a “Wild, Wild West” attitude on all fronts. Like it
or not, both zealots and critics enjoy creating loud noise, if you
will, to put forward their heartfelt opinions. The press can be nasty
and negative, as well, but according to the Satis Group: “Trading
activity for personal investors will increase by 50% in 2019.”
Predictions like these are indications that buying demand will increase
over time. Do your due diligence, select the assets you believe in, and
then go for it. If you let the hype guide your thinking, then you are
part of the herd, and herds have a way of being on the wrong side of a
trade at the wrong time.
4 – Expect the unexpected
Surprises happen daily in Crypto-Land. Learn to expect the unexpected.
News pieces that may seem innocuous may indicate a larger problem
beneath the surface, and token prices are so sensitive with limited
liquidity that even a small news item can easily cause a 10% fluctuation
in price in a single 24-hour period. A few negative words from a
regulator on the other side of the globe can send a coin valuation into a
tailspin. Positive news has the opposite, more desired impact, but the
message is that it is easy to be blindsided in this space. Accept it,
put your emotions aside, and move on.
5 – Avoid Crypto snake oil salesmen
You will be bombarded by social media ads, emails, and you name it by
every “pump-and-dump” schemer or snake oil salesman in the industry,
touting their token, trading robot, or managed fund as the greatest
thing going. You will be an overnight millionaire, if only you would
hook up with their product or service. Forget about it! If what they
were selling was so great, why are they sharing it and for such a low
price, as well? As in forex trading, there is a winner and loser on each
trade, but a broker or exchange has also taken a cut, so that to
succeed, you need to win 60% of the time. Yes, you will need an “edge”,
but your trading strategy, technical analysis, and confidence will
suffice.
6 – Awareness is key
Never choose a token based on a hunch, a rumor, or a secret shared by a
supposed insider. Awareness is key. Although cryptocurrencies are
relatively young, there is a wealth of information on the Internet to
help you understand what is behind each underlying asset. Independent
websites can guide you to whitepapers, if you cannot find them on the
token’s website, another reason for avoiding it, by the way. In a
high-risk arena, due diligence is a must, but in Crypto-Land, you cannot
over-do due diligence.
7 – Diversification is a good thing
Basic risk management lessons instruct us to never put all of our eggs
in one basket. You are better off to spread your risk through
diversification than not. It may be prudent to invest in a handful of
offerings, but not so many that following each one becomes burdensome.
Focus on a few and understand the fundamental forces that drive price
behavior in each. For now, exchange-traded funds, ETFs in the stock
world, are a wonderful tool for diversifying, but it may be years before
regulators authorize an application for a crypto ETF. The SEC has
blocked Bitcoin ETFs, but 2019 might be the year. It may take longer for
a multiple coin ETF to be granted.
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