On another Christmas with a blood red market I feel like sharing my views on investing in alts and the strategy I’ll be using for 2018. I hope this can be of some benefit to any beginners out there.
INVESTING IN CRYPTOCURERNCIES IS NOT TOO LATE
Cryptocurrencies is the wild west of investing. It is a new frontier and it is just beginning. As the concept has reached the main stream media one can get a feeling that it is already too late to get in. It is not. Not by a long shot! Actually that is a fallacy of the mind. We look back in time and think “sure that happened” but when we look forward the uncertainty makes us insecure and hesitant.
That said there is a lot of potential in altcoins. They can make you rich and they can bankrupt you. Therefore, the first rule is to ONLY INVEST WHAT YOU ARE COMFORTABLE LOOSING. If you invest more you WILL be too emotionally involved and you run the risk of not being able to think clearly. This means that you will be prone to rushing in with buy orders at all-time highs and to panic sell everything during corrections. Both will result in losing your money.
To make money from investing you need a clear strategy and to stick to it. Different strategies may work but SWITCHING between strategies will not! Again, this will cause you to make bad decisions and to lose money. My advice can be summoned up as follows:
PICKING YOUR COINS
Go to https://coinmarketcap.com/. Unless you have some special information on a project, go for coins with a market cap > $100mn. These tend to be more solid projects with less risk. Trying to get rich by investing in an unknown project is a gamble and highly unlikely considering the huge amount of coins available.
Look for projects with a daily trading volume of > $1mn. Again, this may be omitted if you have some special information, but generally you want coins with at least some interest from buyers.
Once you have located a potential candidate, go to the coin website and read about the project. Is it well described in a professional manner with good illustrations and possibly videos? Does it have a transparent technical vision? Does it make sense to use block chain technology for the project? Is there a clear timeline with progressive development of the project?
Look at the team behind the coin. This is ABSOLUTLY key. Are they trustworthy? Are they competent? Do they have team members or advisors who have been successful in previous or blockchain related endevours? Is the team active and engaged in promoting their coin on socla media and at live events?
Go to forums like http://www.reddit.com and https://bitcointalk.org and get a feel for what people are saying about the coin. Is there an active community supporting it? This is a clear plus. Look for people who are excited about the technology. However, DO NOT base your decisions on anyone saying that the price is going to jump 100x times in a few days or weeks. No one knows!
Remember – there are so many coins to choose from that there is no need to compromise. Don’t be afraid to discount a coin if there is something you don’t like. Don’t think about what you might be missing. It is about what you choose and not what you don’t choose!
INVESTING
Once you have found a suitable candidate, you obviously need to find an exchange which sells it. I like Bittrex and Binance as they both have an excellent selection of coins and manageable platforms. No matter how much research you have done, be aware, that there is a large amount of luck involved in investing in coins. The fewer coins you choose, the larger the change is of hitting the jackpot. But at the same time the risk of losing your money increases. I like to focus on 5 to 10 coins at a time. However, this is a matter of preference and risk adversity.
I don’t believe that you should kid yourself and try to hit the perfect market swings for investment. You should buy if you think the value is right. It is right if you believe it will go up. Simple as that. However, you want to be careful investing at all-time highs as this confers an increased risk. Contrary, it may be a good idea to buy during general dips in the market as your coin of choice will likely be down due to the general sentiment of the market and not due to intrinsic factors of the coin.
STRATEGY
Once you have invested you need a strategy on how to manage your new coins. As a default you must stick to this strategy. Now in this context, nothing is really right or wrong. You just need to stick to it!
The simplest approach is to simply hold the coins and forget about them for a while. This is a long term strategy and often the best way to go, especially if you don’t have the time to follow the charts on a regular basis.
An alternative is to set goals as you start. For example you can choose to sell everything once the coin has doubled or you can sell half at this point taking out your initial investment. With this approach you may also want to go long and reinvest some of your money with dips. You can also sell everything at a certain value. Charts can help you in determining this. If you chose this strategy, you must tell yourself that you will be happy taking home a profit. This means DO NOT keep following the charts after the sale and blame yourself that you could have made more money. It is almost impossible to hit all-time highs and lows and doing so is almost always connected to luck.
It is controversial if you should use a “stop-loss” in a market as volatile as altcoins. Personally I don’t. However, you may want to set it at for example a 20% drop and keep adjusting up as the price rises. This is both a way of limiting losses and taking profit but it may seriously compromise your gains with also a way of taking profit if the coin takes a lot of swings.
ADJUSTING YOUR STRATEGY
This should be done rarely and ONLY IF ANYTHING CHANGES. You want to follow the news about your coins and the market in general in reliable sources. This includes the website of your coin and the official twitter feeds. Changes may cause you to buy (for example if the team behind your coin is strengthened by a prominent name or makes a deal with a well-known company) or to sell (for example someone leaving the team or failure to deliver on a certain promise). It may also be something in the general market and not related to your coin specifically. For example it can be good to take out some profit if you believe a general market correction is coming. However, this is tricky and decisions should be rational and NOT emotional.
Another reason to change strategy is if something changes with YOU. This could be anything that changes your risk adversity. For the positive you may come into more money somehow and want to invest more. But more importantly, your willingness to take a risk may go down which should cause you to reduce your investment. This goes back to the fact that you should ONLY INVEST WHAT YOU ARE COMFORTABLE LOOSING. Otherwise you will become too emotionally invested and your ability to make good decisions will be compromised.
Above all: NEVER rush to buy a coin just because you see it going up or hear a rumor and NEVER panic sell because something is not going your way in the short term. You should always have a strategy and if you get caught with emotions it is time to step away from the computer, take a breath, and do nothing. Emotional split decisions are how money is lost. I cannot stress this enough.