“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”
– Jesse Livermore, Millionaire Trader
Once we have opened up our accounts, we can start to invest in the coins.
All you need now is a strategy. Most people do not have a strategy which they have thought about in advance, written down and then follow to the letter.
That is the biggest mistake of all. Before we start getting into the strategy, here are a few other mistakes you should try to avoid at all costs:
They invest in something they don’t really understand or believe in long term. Therefore, they are too easily tempted to sell if the price begins to fall in the short term.
To counteract this mistake, start by sticking to the major ones in terms of market capitalisation ie top ten for safety first while you test the market (www.coinmarketcap.com).
If you want something a little bit more advanced with more gadgets but that basically does the same thing, then try www.coingecko.com
Some people prefer Coingecko because it has its own rating system that takes more information into consideration before ranking, whereas Coinmarketcap only uses the market capitalisation to rank it.
It is up to you which one you want to use but Coingecko does have more functionality:
They think they have missed the boat on the most successful cryptocurrencies, whose price has run up – think Bitcoin and Ethereum – and so invest in less established, smaller and more speculative coins just because the price is much cheaper than that of Bitcoin and so have more of an upside.
While you can put a small 10% of your money into speculation, the majority of your money needs to go into any of the pull-backs that occur on the more established cryptocurrencies. A pull-back is a fall in price significant enough for us to enter eg 10% from a recent high.
They try to day trade and profit from short term market movements, both up and down.
While this can undoubtedly be profitable for someone who knows what they are doing, this is absolutely lethal for anyone who doesn’t know proper risk management and who doesn’t have a strategy or has a strategy without the proper risk:reward ratios. Anyone who doesn’t have this is going to get killed by the volatility.
There are many different strategies you can use. Fundamental analysis relies on data to determine the long term trend of the market and, therefore, there is very little to do. Technical analysis, on the other hand, is the study of short term movements in the price.
Some people claim that technical analysis, often made up of a myriad combination of hundreds of different chart patterns and indicators to help you enter the market, can give you an edge.
I particularly like the picture below where a trader makes fun of technical analysis. It says “I have decided to brush up on TA (Technical Analysis) so I can be an expert. Looks like a Yeti pattern is forming. I can confirm $150 price target!” Hilarious!
For people starting out, technical analysis can be confusing. So what to do? The answer is: keep it simple.
What do to with a bull cryptocurrency
My advice would be to do as little as possible and allow the market to do the work, especially in a bull market as we have now. I am not advocating buy and hold. Rather, to buy on the dips and sell 20-50% of your profit as it goes back up but hold on to the rest for when the big move comes.
Take a look at the chart of Bitcoin below. There were plenty of opportunities to get in on pull-back in the price and then to gradually sell on the way up.
Just keep doing it. Rinse and Repeat. The only caveat, and it is a big caveat, is that you do need to believe that it is going to continue up.
If it stops going up, then you have to use the following strategy.
What do to with a sideways or slightly down cryptocurrency
When starting out, we suggest you don’t try to time the market too much i.e. try to get in and out like a professional trader. Use a simple yet effective strategy like Value Cost Average™ strategy. The rules are as follows:
Buy the currency at when it has dropped -10% from a recent high and again at -20% from the recent high and again at -30% from the recent high. Draw your lines in advance, so you get in according to the strategy. Make sure you are looking at a chart which shows the crypto in relation to something stable, NOT in relation to Bitcoin. If you can’t find that then write down the price at which you are going to enter in advance. Each time increase the amount you are investing by not more than 25%.
Remember that cryptocurrencies have massive volatility. Do not get emotional about this. Expect it. Embrace it even. Volatility is your friend so you can buy at a cheaper price. While everyone else is panicking, you will be entering again.
Take a look at the chart below of Monero (Ticker XMR)
There were plenty of opportunities to buy on the pull-back and make a fairly fast 10% with this strategy. And Monero is one of the more stable ones. Even the biggest cryptocurrency, Bitcoin, is EXTREMELY volatile.
That is why these strategies work so well – because of the volatility of cryptocurrencies. See the following chart:
It shows Bitcoins’ major corrections. A correction is more of fall then a mere pull-back. When you look at the % declines in Column 4 each time, you will see what we mean by volatility. Let volatility be your friend. Buy on the dips.
Only use this strategy if you are sure your chosen coin cannot go to zero – stick to the top ten with the biggest market capitalisations.
If you are investing more speculatively because you want to take on more risk to make more potential returns then you need to know what you are doing. This is not recommended for total beginners. For example, you could buy others Altcoins that aren’t in the top 10 or so. But remember the further down the list you go the more risk you are taking that it could go to zero.
If you are taking on more risk then don’t keep buying into it because if it goes to zero all your money will be gone. Here you have to be clever. Try only buying when it has dropped AND you see it going up again.
But remember, this strategy can only work on something you believe will not go to zero. If you believe that Bitcoin or any other Altcoin can go to zero, do not employ this strategy.
Never invest more than you are willing to lose entirely. People always say that but with cryptocurrencies I suggest you heed this advice.