I am going to write several articles with each an important topic for beginning investors. The first topic will be to have a plan ready before entering in crypto and to not put in more money than you are willing to lose. It sounds all boring and maybe not needed (for the plan part), but it is very important to do so.
I remember myself when I first entered this world in December 2017. Alts were starting to boom and I checked websites of altcoins and some of them looked interesting and I decided to go in with some small money. My first ones were Stellar Lumens (XLM), IOTA and Siacoin. Before I knew it XLM and Siacoin went up 5x ! I was looking at it and could not believe how simple it was to make money ! I started checking for other alts like Cardano (ADA), ICON (ICX), Tron (TRX), NANO etc. I got carried away in all these projects and forgot the most important thing, what is my goal ? How much money do I want to make before I decide to take some off the table ? What are my targets for these altcoins ? I saw 5x and thought it was easily going to go further but I had no idea about how markets work. 10x, 100x, it seemed all possible to me and I already saw myself getting rich. I thought I had to act quick (FOMO FOMO) and I entered in all kinds of alts. Well after some weeks crypto went into a bear market and returns went down every day. I thought “well, it will come up again, this is just some correction, no worries. “ We are now in 2020 and most of the alts are still way down from their all-time highs and my investment in some altcoins are still way down. I do believe however that in the long run we will see altcoins rise high again, but certainly not all of them. I have to accept that I made a beginner mistake by entering in all kind of alts without really knowing what I was doing and I actually forgot about the most important cryptocurrency of them all, king Bitcoin. The last year I have been dollar cost averaging in, in some altcoins that I still believe in to get my average buy-in price down to reasonable levels, but this is for another topic.
What I try to say is, do not get carried away by all these altcoins because a lot of them look interesting and keep level-headed with a clear plan of what you want to achieve. Have a fair plan, do not put in more money than you are willing to lose and be happy with reasonable returns, do not get too greedy and accept for example 5 to 10x returns in the future of altcoins and Bitcoin. Take some profits and be strict to yourself (discipline), I know I will do this when the time arises. Markets go in cycles and in my opinion we are at a start of a new bull market, so in the coming years there is a fair possibility we will see good gains. After that it will fall again like in 2018/2019 and another surge will definitely be possible if nothing major happens against cryptos. This means something very important : you will have time to invest ! Have patience and go slow. Dollar cost average in and do not put in all your money at the first time you want to enter. Even if prices go up you can continue to dollar cost average in (this is harder to do though). Tell yourself it is good to take some profits, even if it is only a 2x or a 3x. Be happy with this and do not get carried away by dream figures of 100x or a 1000x. Of course there can be projects that go 100x or even more, but chances are less likely and finding them is hard as well. We have had an ICO boom in 2017 and this will probably not repeat itself anymore. Do not knock yourself over if there is a coin that goes 100x and you are not in it. You are going to lose your mind at some point if you follow every single coin out there. If you put in too much money, more than you are willing to lose, you are not going to sleep well and moves to the downside will hurt you more and you will get emotional and make bad decisions.
Here are some simple strategies you can follow if you want to keep it simple :
- The little old lady style
This means that you take off half after it doubles from your entry point. Like this you are playing on the house and have less risk (DavinciJ15 strategy), because you get your initial investments back every time.
- Take profits every now and then along the way and re-enter
If you think about it, it is actually a good idea to take profits every now and then along the way. Your money will be growing and you will be able to re-enter when you see fit and this time you can re-enter with more money than before. If for example you entered Bitcoin at 8500 $ (let us say for a 1000$ investment) and it would go to 42500$ (5x), you can always decide to take the profits (you will have 5000$ now) and decide when will be your new entry point. This time you can maybe invest for 2000$ (which means you still have 3000$ instead of your original 1000$ investment) instead of a 1000$.
- Take partial profits during the ride
Another way of thinking would be to take only a part off the table. In the example above you can decide to take out 50% of your holdings when it reaches 5x (in this case you take 2486$ more or less off the table) and the rest you just let it run. This is up to you to define, whatever makes you comfortable. You can decide to take 25% off if it reaches 25000$, another 25% if it reaches 50000, etc. Also with these profits you can always decide to re-enter them if you wish to do so.
There are different kind of ways to play this market, so it is very important to have some sort of plan ready, otherwise you just keep on let it running, you get greedy and before you know it prices reverse and you just let it go down without selling. Discipline is very important as well when you come at the point of selling it. It is so luring to just wait another day before selling. What if it goes up again tomorrow and the day after ? Do I let these extra profits slip ? Yes you should let them slip whenever your target is met. This is not easy to do but when it happens and you execute it, you will be relieved and happy. A lot of people want to sell at the exact top and buy at the exact bottom, everything else is bad. But guess what ? This is nearly impossible to do, so be happy if you make money ! Furthermore it is very important to not put more money than you are willing to lose. Investing in cryptocurrencies is risky and prices can go to zero. You should be willing to accept this and should not have a problem with the fact that this can happen. If it goes to zero ? Ok, it would be a shame but at least I tried and I did not put in a substantial amount and I can still live a normal life.
As all people do (I guess there is something to it), please know that this is not financial advise and I am not a financial advisor. Do your own research and do not base anything on decisions or strategies of others. You can use it for information and try to use different sources, but make your own decision and blame yourself and not others when something goes wrong. If you follow people blindly, you will likely lose your money, because they most likely have different reasons, objectives and time-lines than you do.
Thank you for reading and please give feedback in the comments if you want ! I will be preparing my next topic !