Hi fellow readers. Welcome to the world of cryptocurrency!
I want to help you learn more about investing into cryptocurrency projects and understanding what makes a good portfolio.
Opinions vary when it comes to talking about different cryptocurrency projects. Very often if you mention one project or another, you will be shunned, downvoted or called stupid since you do not support their specific project. In other words, they probably invested a ton of money into that project and hodled a 90% loss.
The first rule of crypto is to take everyone’s opinion with a grain of salt since you do not know the reason why they promoting a specific project.
Invest in solid projects that have a long life span
This is definitely a lot easier said than done. How do you invest in projects that have a solid lifespan which will not end up on the deadcoins website? I have made a short bullet point list for the criteria I am looking for when investing. A key point to investing is diversifying risk and making sure that a good portion of your coins are in good projects. For a smaller percentage of your investment you might want to increase your ROI, so you might decide to invest in projects with a lower marketcap.
Check the trading volume
You can filter projects by trading volume on coincheckup. Very useful for finding new projects.
Read the whitepaper
This might not be for everyone since many whitepapers are complicated. However, it is useful to know what the project is trying to achieve and if you believe there will be a market for it in the future.
Look at the roadmap and calendar
You can also look at what goals the project had last year and see if they have met their goals. You can always change your decision about a project if you feel like they are not that interested in continuing the development and are missing deadlines after deadlines.
Check the amount of users are using the project
A good indicator for the popularity of a project is the amount of transactions and users. The more people that are using a specific cryptocurrency platform, indicates that the value of the coin is generated by utility and not only speculation. Especially in the middle of a bear market.
Check the charts
“Technical analysis is just drawing lines on a chart the price will go up or down!!”
I have heard it before. Technical analysis is all about probabilities and increasing your chances of finding the best entries and exits. The goal is not to be right all the time, but to be right often and having a good risk to profit ratio.
You can get a free account on tradingview where you can look at many different cryptocurrency pairs. If you are a longterm investor then the 4hour and daily timeframes are the ones that will interest you the most.
The most important indicators you can use are
- Pivot points: Pivot points draw the support and resistance lines automatically for you
- EMA: Exponential moving average. These can be set to different lengths to suit your needs. When the short term ema is above the long term ema then the trend is bullish and when the long term ema is below the short term ema then the trend is bearish. I wrote a guide on moving averages here.
- Relative Strength Index: The relative strength index (RSI) is a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. The interesting part is when you can see bullish and bearish divergence in the price.
Keep you emotions under control
If you are new to cryptocurrency then you might not be familiar with expressions such as hodl (hold on for dear life), fomo (fear of missing out), fole (fear of losing everything). Hodl in my opinion has become a sad meme for many traders since they got into cryptocurrency in december or in january where most coins where at all time high.
Why is that? Fear of missing out on profits and greed is the answer. A normal human trait that is even stronger when financial gains are involved.
Me personally I have been victim to sudden urges to buy this coin or that coin because my emotions where telling me if I didn’t buy it right now, then I will lose out on 10x gains.
The same thing happens when you buy a cryptocurrency and it starts dipping, you will hold on since you do not want to sell for a loss. That is why managing your risk when investing is important. I will talk about that more in the managing risk section.
The key points to take from this, is that emotions play a big role in investing. Longterm investing is definitely a lot easier since you do not have to deal with the intraday fluctuations of the coins. Try to figure out when your emotions are taking control of your decisions and step away. Fomo is often accentuated by sudden dips or rises in price and various youtubers and content writers that try to pull on your emotional strings. In my opinion if you do your own research and learn a few basic trading elements, you can mitigate how much emotions affect your trading decisions.
In my opinion a very good audio book to listen to is Trading for a living Psychology and Trading tactics
I wrote an article about how hodling is not always the best option for crypto. Especially in a bear market. Manage your risk while investing and cut your losses before it is too late. However, if you are already at a 90% loss then cutting your losses now doesn’t make any sense you might as well cost average your loss down.
Taking profits is definitely not easy. Everyone is scared of the coin going up 10x more than it already has. People get greedy and are not happy with the gains they already have.
This next step is based on your personal goals. Even though you might want to keep your investment for the next ten years, I suggest selling a portion of your coins when your total value is several times more than what you invested.
With the following example I will show you how I intend to take profits:
In this example I bought 18500 coins for 5000usd @0.27$ a piece
I decide to take out my initial investment when[crypto] reaches 1.30$
I sell: 3846 coins for 5000 usd @ 1.3$ a piece. I still have 14654 coins (19k $)
I decide to take out the same amount when[crypto] reaches 2.50$
I sell: 2000 coins for 5000 usd @ 2.5 a piece . I still have 12654 xrp (36k $)
I decide to take out the same amount when [crypto] reaches 4.2$
I sell: 1190 coins for 5000 usd @ 4.2 a piece . I still have 11464 xrp (48k $)
This is just an example. However with this example you will have 15k $ realised profit and 48k $ unrealised profit. You can continue selling a small portion of your coins as the price goes up. Even though you are taking out the same amount of usd the amount of coins you are selling goes down. This strategy also gives you the possibility to buy back should there be a dip in price.
When is it definitely a good time to sell?
When everyone’s grandma and postman starts talking about investing. Joking aside. If you look at the graph below you can see the trend to buy bitcoin spiking at the top of the bull run. The same thing happened in 2014 but it is barely visible on this graph. Even though the trend is most likely a lagging indicator, it is definitely a good basic indicator for the sentiment and general interest for bitcoin.
My personal investment philosophy
I am definitely a long term bull when it comes to investing in cryptocurrencies. I feel incredibly lucky to have discovered bitcoin back in 2015 and I have learnt a lot in the last bull and bear run. For me 2019 will be a very important year where I will try to accumulate as much cryptocurrency as possible. (I will not be taking out any loans as I am then risking more money than I can afford to lose).
I will be cost averaging every month a certain amount into cryptocurrency. In my opinion the volatility of cryptocurrency will decrease as we will start moving sideways. Even though past bear markets are not an indicator of future movements, I am confident that the current bear market will also be around 1.8 years. The following bull market will start off slowly like it did in 2015.
I know I will not be able to buy at the complete bottom and I will probably not sell at the complete top. But by cost averaging in below a certain price, I can get a good average buying price. The same goes with selling. Even though I didn’t realise all of my potential crypto gains at all time high, I have a good return on my initial investment.
I hope this guide was helpful to you. I will definitely be talking about my top pics based on my research but that will be for a future post. In a mean time I wish you good luck with your cryptocurrency endeavours.