With the meteoric rise of Bitcoin, the cryptocurrency market is finally hitting the mainstream…
However, it’s still a highly volatile, risky investment – and that’s exactly why you need some solid principles to guide your decisions.
So in this guide, I’m going to cover 8 of my golden rules for investing in cryptocurrency – designed to help improve your success as a trader.
1. Only Ever Invest In Coins You Believe In.
So I’d recommend only ever investing in the coins you believe in because that will make you a more confident investor – and if the market dips, you will still have a solid portfolio of investments.
I’ve actually listed 5 of the cryptocurrencies I truly believe in and the reasons why – but it’s really important to do your own research too.
2. Never Invest More Than You’re Willing To Lose.
Whether it’s the cryptocurrency market, stocks or even Forex, you should never invest more than you’re willing to lose. It’s the classic golden rule of any investment…
But when it comes to cryptocurrency, this is easier said than done!
When the market is booming, it’s seductively easy to over invest. Make sure you stay disciplined and stick to your budget.
3. Diversify Your Portfolio.
Never put all your eggs in one basket! Diversifying helps you spread your portfolio across several different markets, therefore reducing your overall risk.
Read: What Warren Buffett Thinks About Risk
This means that if one market dips, your overall portfolio won’t crash completely.
Here’s a few ways to diversify with cryptocurrency:
- Industry: You could spread your portfolio across several high growth industries. Privacy coins, payment platforms and utility coins are some of the main industries to diversify across.
- Coin market cap: Some cryptocurrency traders mix their investments across high market cap coins (like Bitcoin) and low market caps to average out their overall risk. You can find a list of market cap rankings here.
- Long-term & short-term: You could invest part of your portfolio in swing trading, whilst holding a pot of long-term cryptocurrencies too.
4. Stay Up To Date.
In terms of price fluctuations, a few weeks in the crypto market is like a year on Wall Street!
You see, cryptocurrency exchanges run globally 24/7 and that means the market is constantly fluctuating. In fact, the market moves so quickly that if you don’t stay up to date, you can easily miss vital information…
So here’s a few places you can stay up to date:
- Steemit: this is a great crypto community, funded with it’s own cryptocurrency! Everyday, thousands of articles are posted about the latest crypto updates.
- Reddit: Reddit actually has a dedicated community for almost every reputable cryptocurrency on the market. With this list of sub-reddits, you’ll find the latest opinions and developments for each of your investments.
- YouTube: Some of the biggest influencers in the crypto world post daily videos via YouTube, with some incredibly useful investment info.
5. Analyse Your Mistakes.
With cryptocurrency being a relatively new market, it’s easy to mistakes – in fact, it’s expected! However, it’s how you learn from your mistakes that counts.
It’s really important to evaluate your trades and look at how you can improve. And in the long run, this will make you a better trader.
Once you’ve been investing for a while, look through your previous trade history and analyse:
- How did your portfolio perform against the rest of the market?
- Did you stick to an investment strategy?
- Are you making emotional or logical investment decisions?
- Have you hit your profit goals?
Information is the key when it comes to cryptocurrency:
It’s how you’ll stay ahead of the market, discover new opportunities and increase your confidence as an investor.
With the nature of cryptocurrency being so technical, there’s a lot newbie investors who aren’t particularly clued up. So if you put in the extra effort into researching, analysing and reading white-papers, you’ll be way ahead of the pack!
7. Don’t Succumb To FOMO.
FOMO stands for the ‘fear of missing out’ – and it’s become infamous with most crypto investors. If a coin suddenly spikes in value, most people’s initial reaction is to feel like they’re missing out.
But when it comes to cryptocurrency, never chase trades! Find the coins you believe in, stay disciplined and stick with them.
8. Avoid Emotional Trading.
With the volatility of the crypto market, it’s incredibly easy to make rash, emotional decisions – but don’t fall for this rookie mistake!
Focus on logical investments and take the emotion out of it. One way to do this is by having an investment checklist in place, so that you only invest in coins that fit the bill.
Here’s some key questions to ask yourself before you invest in any cryptocurrency:
- Do they have a strong leadership team?
- Is their development team working on new updates?
- Have you read their white paper?
- Do they have a strong brand/marketing team?
- Are they ambitious as a business?
If you have a fundamental investment strategy in place, you’re more likely to make better investment decisions in the long run – and that’s exactly how creating a checklist will help you.
The crypto market carries a lot of risk – and that’s exactly why you need a solid set of ‘golden rules’ when it comes to investing.
The key with crypto investing is to avoid making emotional decisions, stay disciplined and only pick coins with solid foundations. Once you have some strong principles in place, you’ll feel more confident as an investor.
Have any questions about investing in crypto? Post a comment below and let us know.
Julian Goldie invests in cryptocurrency whilst traveling the world. His blog – King Passive – teaches beginners how to trade and invest in crypto.