Everybody nowadays is looking for a way of making money from cryptocurrency. Be it through mining, trading, or investing, there are plenty of ways in which you can make a profit. However, it’s not as easy as it looks to be.
You may have the money to invest, but what exactly should you do with them? Fortunately, we have some investment tips which you can use in your cryptocurrency investment strategy.
1. You Make Profit When You Sell
Even though it is encouraging to see your coin’s value rise, just because this happened doesn’t mean you’ve made profits. The profit is actually made when you convert your coin into fiat currency. This is due because of the volatile nature of cryptocurrencies. One moment the value might be at its all-time high and in the next one, it might drop below your initial investment.
2. Don’t Be Governed by Emotions
Having an emotional response is normal. Seeing as in the cryptocurrency market is prone to have incredible spikes and crashes, it’s not surprising that many are uneasy when they see the prices fluctuate. But in order to be successful and generate a profit, you have to be strong-willed and keep your emotions in check as well as keep your eye on the numbers. Do not let fear govern you. This is the reason why many new traders make big mistakes and sell out of panic.
Many people trade based on their gut feeling instead of making smart decisions based on market movements. This often leads to more losses or making less profit than they could have potentially made.
If your coins have grown a bit in value, resist the impulse to day trade. Don’t convert your coins just because you’ll make just a little extra money. Keep focused on your profit goals and do not get distracted by small increases, and pay attention to any relevant news that could influence the coin’s performance.
3. Use Limit Orders Instead of Market Orders
When you decide to trade using an exchange, try to use limit orders instead of market orders. On some exchanges, such as Coinbase Pro, limit orders incur lower fees. If the exchange you are using rewards you for using certain order types, try to use them.
4. Determine What Type of Trading Strategy Is Best for You
You can adopt either the long or short-term strategy. Figure out if you will be going short with every coin that you invest in, or are you going to go long, or some long and some short.
Long-term investors are advantaged as they have lower tax rates if they can hold for over 12 months, but as a trade-off, they will have to go through corrections. Short-term investors are able to bypass corrections if they move swiftly, but they’ll be obliged to pay taxes on the profits from each trade they execute along the process.
5. Average out your position
If you go long, think of adopting an average position, for instance through dollar cost averaging or value averaging. An efficient strategy of avoiding the effects of a poorly timed trade is to buy incrementally instead of all at once which is known as buying an asset at its “average” price over time.
This strategy is useful for those that do not have knowledge of technical indicators and how the crypto market’s volatility works, think of averaging out of positions as well. Averaging isn’t just financially conservative, it also lessens the stress that is put on you when the market fluctuates. Adopting a position which is too big at once can be emotionally difficult to handle (and will eventually lead to you making a bad decision.
6. Keep Your Eye on Crypto Trends
The crypto market is heavily influenced by trends and news. A coin’s price usually goes up when new developments and partnerships are announced, and goes down when there are rumors or news about a hack or new restrictive legislations which concern cryptos.
7. Monitor the Coin’s Circulating Supply and Maximum Supply
Supply and demand laws also apply to the world of cryptocurrencies. This is the principle on which many pump-and-dump schemes are based on and it is also why they work. The more people invest in a coin, the higher will be its price. This is why you can’t determine if a coin is a profitable investment just because it’s cheap.
Its value must be considered in comparison to its circulating supply. If the number of coins in circulation is closer to the maximum supply that can be mined or issued, there is a higher chance of the coin rising in value. This occurs due to a lack of supply in the coin when there is a rise in demand.
Cryptocurrency speculation and trading can generate a lot of profit when you make the right decisions, but it can also be a risky endeavor.