They say we learn from mistakes and that is especially true in the world of crypto. For beginners, making an investment without having a strategy can lead easily to losses.
In order to win in crypto you need a good plan – this is why in this article we’ll present you several simple rules to follow in order to protect your investment in crypto.
Buy High, Sell Low
One of the most common and simple mistakes one can make is buying when the price of an asset is high. Since everybody is talking about how high the value of a token is, the FOMO (Fear of Missing Out) feeling creeps in.
This fear appears when you don’t want to lose the moment that everybody is talking about. But when you are investing in a project that is growing there is a bigger chance to lose the money than make a profit because early investors will withdraw their profits leading to a decrease in price.
A good example would be the November 2021 Bitcoin situation when the King of Crypto reached a new All-Time High of $68,000 and many predicted it would grow to $100,000. This let FOMO set in and many bought when the price was high.
We all know what happened next – as a result of geopolitical and economic events in recent months, the FUD (Fear, Uncertainty, and Doubt) began, making investors scared and leading to them selling their assets at a lower price.
Although it looks difficult, if you’ve invested in a solid project and you have a medium-term/long-term plan, there is a high chance that project will experience an ascending trend at one point.
In order to avoid such issues, it is important to manage your emotions and actions, have a long-term strategy, and not make investments when the market is high.
Investing By The Ear
The levels of crypto adoption are increasing. Companies involved in the industry are buying stadions, becoming sponsors of sports teams, and celebrities are bragging about their NFTs on social media. We all know somebody who knows somebody who got rich from a meme coin.
You may have a work colleague who mined Bitcoin in 2017, a hairstylist who bought Elon Musk’s favorite cryptocurrency, or a plumber who accepts payments in EGOLD – and all of them think their method is their best one.
It’s important to have your own strategy and don’t follow others blindly. This is because people have a tendency to brag about their accomplishments so many investors are hiding their losses and focus only on what they’ve made. And in many cases, losses can be higher than their wins.
You may have a cousin who’s trying to convince you to invest in a coin worth only $0,0001 in the hope that it will reach $1 but that is unlikely to happen. Don’t invest solely based on what you’ve heard, always do your own research, read the project’s whitepaper and about the team behind it.
Try to find out what’s so innovative about the project and if the team has the means to reach those goals. Inform yourself from official sources. Reach out to people with experience and ask them what they think about said project.
Trading Without Prior Knowledge
Your strategy needs to involve a fundamental analysis and a technical one. Don’t start trading if you aren’t familiar with basic terms such as market cap, volume, or circulating supply.
It’s also important to know how to read a graphic, to know how to follow candles, and determine a trend. With minimum effort, you can be ahead of those investing by the ear.
In order to be a successful investor, aside from the money investment you also need to invest in your time and education. You’re in luck because there are plenty of free resources available on the Internet – including our channel!
You just need the time and willingness to educate as much as possible so you can make the best investments possible.
You Don’t Have a Diversified Portfolio or You Invest In Too Many Coins
There are two types of investors who, seemingly, have completely different strategies, but end up making the same mistake – they don’t find a middle ground.
If you have a budget of $10,000 and you invest all that money in one project that you’ve heard about from your cousin or you invest $100 in 100 high risk – low cap projects that you found on a Telegram group, in both cases, you are lacking an equilibrium.
Don’t put all of your eggs in one basket. It is important to have a diversified wallet with projects from various branches and a calculated risk.
It would be ideal to especially own blue chips in your wallet as they are known for lasting, like Bitcoin or Ethereum.
Based on your strategy, it is recommended to own projects belonging to DeFi, Layer 2, NFTs, utility and privacy tokens.
Investing More Than You Are Willing to Lose
Certainly, this is the most important rule when it comes to crypto investments. Don’t forget that this market is highly volatile and the risks associated with it are high.
Never invest all of your economies, especially emergency funds. Never invest all of your money unless you are willing to lose.
You must picture these funds as if they wouldn’t exist anymore. Ask yourself – if tomorrow I’d lose all this money, how would my day to day life be affected?
The best solution for a beginner investor is the DCA aka dividing the investition in smaller amounts across fixed periods of time. This way you are reducing your risk and you’ll enjoy a bigger revenue in the long term.