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Cryptocurrency Investment: they have been taking the world by storm and making many of their early adopters quite wealthy. Cryptocurrencies are gaining momentum as more and more traders decide that they cannot afford to be left out.
However, if you are just jumping into the cryptocurrency markets now, you need to make sure that you have got all your ducks in a row. Most importantly, you need to have a plan and some goals as to what you want to achieve.
Although cryptocurrencies are no doubt a relatively complicated product, investing and trading them should not be. That is why we have compiled this list of top tips that you can follow if you want to make a reasonable return on your investment and limit your downside risk.
1: Know the Basics
Although a new investor is not expected to know the ins and outs and technical details of the cryptocurrency, they should at least have a basic understanding of what drives these assets.
These include such details as the Supply (miners) and the demand (users). They also have to know how changes in protocols and regulations will impact these two factors.
The trader should also try and distinguish between users as not all are the same. Some are your investors or “Holders” who like to hold onto the coin for an extended period.
Others are your ordinary traders and businesses who will transact with Bitcoins on a daily basis but will not hold it for an extended period.
Understanding how protocol changes will impact the price are helpful for situations such as that which is currently going on with Bitcoin. Now there, is a hard fork that may occur on the Bitcoin network which will possibly create two new chains.
There was a similar protocol change that happens with Ethereum recently, but this did not result in a chain split. It was merely an â€œUpgradeâ€.
2: Find the Right Exchange / Broker
Next, you need to decide whether you want to trade the cryptocurrency on a daily basis through the use of a CFD or options broker or if you wish to hold them in a wallet or on an exchange.
If you want to trade the coins on a daily basis, then you are best advised to open an account with a cryptocurrency option broker. These allow you to trade on the value of Bitcoin with a derivative type instrument.
However, if you would like to buy some coins and keep them physically on an exchange or on your wallet, then you can use an online Fiat for cryptocurrency exchange tip such as Coinbase or Kraken. Once you have your platform of choice set up, you need to develop a strategy.
Cryptocurrency Investment Strategies
Your strategy will mostly be determined by the objectives that you may have laid out earlier (whether you are a holder or trader). It does help to know a range of these before actually taking your first position.
An investment strategy could either be a fundamental strategy that focuses on critical news and developments in the market. This will usually be news that will impact on the long-term fundamentals of the coin. These are all long-term driven strategies that rely on supply/demand to move the price.
You could, however, used tried and tested technical strategies. These are strategies that focus on the price moves themselves and use these as a benchmark to determine how the price should continue to perform. These types of analysts will also use charts and indicators to further enforce their view of where the coin is going.
Of course, you do not have to be dogmatic about this. You can also use a combination of these as well as other more exotic variants such as algorithmic trading. The best traders are those that know how to use these in an effective combination.
4: Don’t Let Emotion Control You
One of the worst things that you can do as a cryptocurrency trader or investor is to let your emotions control your decisions. This is because our emotions are not the best guide to where a coin price is likely to go and help us make unforced errors.
It is emotions that creates a feeling of FOMO (Fear of Missing Out) among traders which lets them buy coins that are at inflated prices already. It also is these feelings that make traders take profit on a coin too soon when the market has not run its course.
As crypto investors and traders, you need to be completely analytical and base all of your decisions completely on the strategy that you have formulated above. Temper your temptations, follow a game plan and donâ€™t give up!