Here are lessons I had to learn the hard (expensive) way that I wish someone had told me before I started investing in cryptocurrency.

After two years alternating between full-time and part-time cryptocurrency trading, here are the most important lessons I had to learn the hard way:

1: Have a Strategy

How many times have you heard “I hear Bitcoin is a good investment, should I buy it?”

These conversations starters are doomed to become failed investments.

It’s not because I don’t think it’s a good investment, but rather there is much more to the subject of investing than whether something is a good deal.

You need an enter and exit strategy. You need to know your expectations on growth, timing, risk and amount of capital you are willing to invest. These are all important questions that should be clearly answered before making your first cryptocurrency investment.

I’ve seen too many people chase the latest fad, pumped coin or simply follow someone else’s advice without confirmation. Sometimes these people luck out on a few good trades. But in the long-term, they all fail.

Before jumping into cryptocurrency investing, decide what you are willing to risk/invest. Decide the amount of time or energy you are willing to put towards this activity, and the time-frame for the investment and your exit strategy.

2: Decide “What Type of Investor Are You?”

This is where your personality type comes in. Cryptocurrency trading is far more psychological than most people are aware and it’s important to be the type of investor which best fits your personality type — otherwise it may end in disaster.

There are three main groupings of cryptocurrency investors:

Day Traders

These are the guys watching the markets 24/7, continually researching and typically buying and selling multiple times during the day. It’s high intensity, high risk and high adrenaline. Most day traders I know are young and pumped full of caffeine. If this is not for you, don’t even think of day trading.

Swing Traders

Similar to day traders but with less intensity. Investments are generally held for longer periods of time from a few days up-to a few weeks. A few buys and sells are done during the course of the week and this can be done on a part-time basis. Most traders I know are swing traders.

Long-term Investors

These are the guys that buy and hold. It’s the guy to who bought Bitcoin 7 years ago and still holding onto it. It’s those people who decided to allocate 1% of their diversified portfolio into cryptocurrency. Long-term investors aren’t interested or phased by the intraday, daily or weekly trends. They view their investment over periods of years. These are buy and hold type of investments.

Decide on the outset what type of trader you are.

Cryptocurrency is a temptress and she will try her best to move you away from your trading “personality”. Don’t allow this to happen as it will end in disaster. Stick to the type of trading which best suits you personal type as it will help clarify which trades you will consider and the ones you won’t.

3: Don’t Buy Shit Coins

Another way of saying this is only buy coins/tokens which have intrinsic value. Don’t buys some random coin because it’s going up and you’re friend told you.

Sadly, most cryptocurrencies are shit coins. With over 1,500 different cryptocurrencies actively traded and another 1,000 new coins to enter the market this year, the majority of these coins can be classified as “shit coins”.

So…what is not a “shit coin”? A cryptocurrency which has intrinsic value.

Cryptocurrencies with Intrinsic value, that is they have a specific and well defined market need, they have a large and supportive community, they have a team of developers with a roadmap and proven ability to get things done. And probably most importantly — they have financial backing.

Those cryptocurrencies which already have VC (external) funding have already been vetted by experts who do company evaluations for a living (Actually, this is a great “research short-cut” to find the next up and coming cryptocurrency — follow what VC firms are buying).

The more money in the pot to pay employees and for marketing, the greater the chance of success for that project.

There is an exception to this rule — Day traders buy shit coins all the time. Which is one of the reasons day trading is so risky. However, my advice still stands — Don’t buy shit coins. They will leave you high and dry.

4: Do Your Own Research

Sadly, FUD (Fear, Uncertainty and Doubt) and FOMO (Fear of Missing Out) rule the cryptocurrency market. Trading cryptocurrency is a psychological game you need to master. Learn to make your own opinions. There are no oracles in this market. Experts only offer educated guesses.

If you don’t do your own research, then you are relying on the research of others. In my personal experience, my best investments where those cryptocurrencies I found on my own — before they become popular and others were talking about it.

Learning to do your own research is an important life skill and one that can pay very well if you get it right. It’s about developing your critical skills, pattern recognition, and balancing your emotional and logical faculties.

Doing your own research and forming your own opinions will help you battle the psychological components of this game much better.

5: Start Small

In the last two years on two separate occasions I had taken a $100 investment and turned it into over $5,000 over a period of a few months.

It is possible.

Start small. Starting small allows you to make mistakes that aren’t costly. Your success is rewarded with more capital to invest. The better your skills, the more profitable your trades. The more profitable your trades, the more you are able to trade with.

Starting small also means almost anyone from anywhere in the world can participate in this marketplace. You don’t need large sums of money to enjoy cryptocurrency trading. In fact, I’d recommend against it — especially if you are first starting out.

Think of it this way. The market rewards you for your skills. The better your skills, the most profitable your trades and more capital you have to work with.

There is a learning curve and money can’t buy you this education.

This education is only gained in the trenches by doing. In the beginning you are investing in yourself — your skills as a trader. You’ll know when your skills as a trader improve, because the capital you will have at your disposal to invest in will increase commensurate with your ability.

Also, when you start small and build your capital within the cryptocurrency market, there is an important psychological component that is worth noting.

Most of us have money issues. If you start thinking of your trades as “this investment is equivalent to 3 months of full-time work” it will certainly impact your ability to make good trades.

When you start small, it becomes a game. The most risk is your $100. You can always cash out a percentage of your earnings as reward for your success. Just keep the process going.

Take Heed

These are lessons which I paid a lot in money, frustration and time to learn. Investing in cryptocurrency can be fun, exiting and extremely financially rewarding if it’s approached in the right way.

Cryptocurrency trading can also cause financial ruin if you don’t approach it the right way.

For all those traders, or those looking to trade, have fun, enjoy the journey, and please heed this advice.

Trade Safe.