It’s 2022; yet another year where hundreds of thousands if not millions will enter the cryptocurrency market seeking to make profits. While that may not be guaranteed in the world of high and fast price swings of cryptocurrencies, there are indeed things one can do to reduce the potential psychological impact of a potential loss and make achieving profits more likely. In this article, we discuss strategies to start cryptocurrency trading in 2022.
In order to keep things organized and ensure maximum understanding by the reader, we will be discussing strategies on approaching cryptocurrency trading in 2022 in the following manner:
- Get your misconceptions out of the way
- Be in it for the long run
- Consistency is key, even in crypto
- Not the tools that make the investor
- Knowing when to take a break
- If it is being bullish you seek, bull to the max
- Do your own ‘thang’
Get your misconceptions out of the way.
There may be a number of reasons why one would want to start cryptocurrency trading. People may want to get in on the crypto craze thinking they would be getting on the bandwagon of the next financial revolution. Or they would want to support the idea of a decentralized payment method. However as various as the many reasons be, the one common pursuit of profit unites all. The hope that they could invest money in and get more of it out is the main reason why people want to get into trading cryptocurrencies.
This is where a lot of people get mistaken. You may have heard that the Cryptocurrency market is highly volatile. Volatility is a measure of how much the price of a particular security, cryptocurrency, in this case, swings from its mean value. Basically, it is a measure of the ups and downs of a particular security’s price. The more the price swings of a particular security, the greater the profit potential.
When we take into account how volatile say the cryptocurrency industry’s competitors are, we will be able to see why many people drool over cryptocurrencies. The S&P 500 has volatility for 17% while WTI Crude Oil stands at about 54%. Comparing this with Bitcoin’s startling 64%, indeed cryptocurrencies have a lot of potential for high profits.
However, where there’s potential for high reward, there is high risk. A lot of people only look at the potential for a high reward that they overlook the high risk alongside. They are indeed not to blame as there are many organizations publicizing how profitable cryptocurrency trading can be. While they do so in order to attract you as a potential subscriber to their services, it also results in giving people a false image of what cryptocurrency trading actually is.
Hence, it is always imperative to keep reminding yourself nobody can guarantee a profit, and due to high volatility, it’s not just profits that can be huge but losses too.
Be in it for the long run
Another huge mistake people make is thinking cryptocurrency trading can get them rich overnight, it can’t. Now if you already knew that and think you’re at least going to have to be in the market for at least a few months, you’re still wrong. A good thumb rule is to look at 2 years as the minimum amount of time your investment is going to be in the market. This means you will not be taking your money out of the market under any circumstances within 2 years whatsoever.
Many advise using this strategy when investing in cryptocurrency to also ensure that people never invest money they are planning to use, so they don’t hurt themselves by potentially losing money they need. When investing in the crypto industry, do note that while the major price shifts may entice a person to get in for the quick bucks, it is usually the ones who take their stand that come out with more experience and steady profits.
With the 2 year strategy, one must make sure to only invest money they will not be needing for 2 years. This is done in order to avoid selling their position when the price of the particular cryptocurrency they invested in is at its lowest. So say you have a thousand dollars you wish to invest, but you would be needing $200 in the next few months. This is a situation where you need to be quite strict with yourself and ONLY invest the amount you will not be needing for the next 24 months.
A lot of people at this point believe it’s okay to defy this thumb rule when for example, they are investing in DeFi pools. DeFi pools, in short, are what provide liquidity to decentralized exchanges instead of traditional market makers. In return for investing in DeFi pools, the investors get a small portion of the overall transaction fees charged by that particular decentralized exchange, in proportion to the investor’s contribution to the pool.
Even investing in DeFi pools should always be done with money one is ready to lose as there is always a chance of impairment losses, which would not be recovered if you need access to your funds urgently. On the other hand, hacks aren’t uncommon.
Hence, keeping the 2-year rule close will not only ensure one is only investing money they are ready to lose, but also that they learn by keeping an eye on how their funds are doing in the market for at least 2 years.
Also read:Doing this will ensure you aren’t purely earning money off of cryptocurrency trading based on fluctuations you don’t understand, but rather gain a good understanding of how the market responds to factors responsible for price swings.
Consistency is key, even in crypto
Say you listened to the thumb rule mentioned earlier and invested $800 into BTC. Now you notice that 3 weeks later, BTC sees a major dip in its price and it’s almost impossible to ignore the urge of buying more BTC at this low price. After all, there are so many others you hear about on Reddit, Discord, and other platforms getting returns crossing 50%. You may think the time’s finally come for your hour of glory.
In order to ensure you don’t make a bad decision on your feet at moments such as these, a strategy is known as ‘dollar cost average’ is what many traders look to. There is a ‘fear of missing out many traders experience. When the market positions of your focused security are so desirable, you want to get on the bandwagon alongside others and make yourself some profit. That fear of missing out is present in even the most professional of traders and in order to make sure they don’t do anything stupid in those times, there exists the DCA strategy.
Short for Dollar Cost Average, this strategy requires one to look at the total amount they are willing to invest in the market. The amount they are ready to lose. And divide them into equal portions so you can buy the same dollar amount every set time interval. Say for example you had $800 to invest, you could divide that $800 into 8 $100 investments you make each month. This ensures that you are fulfilling that urge to participate in the market’s movements when you see it move in your desired positions.
However, there is one point that needs to be made here which is that you need to be very strict in implementing this rule. You must set a particular time interval between investments and you must abide by it too. Unless you have a good idea of what you’re doing, do not break the cycle (emphasis on the unless here).
Do note that cryptocurrencies still have a long way to go in integrating into our lives as well as fiat currency and that as it takes these strides, its value is bound to change. Understanding this allows you to exercise being calm in setting out the time intervals between each investment. It is recommended that one avoids buying all their positions with their total investment amount within four weeks. It is always advised to be spacious in the time intervals as the time intervals allow you to plan your next investments well.
Not the tools that make the investor
As in most things, a lot of times people worry too much about having the right tools before they begin the art itself. When it comes to investing in cryptocurrencies, some people make mistakes like that. While it is no doubt a very good idea to know how the cryptocurrency market is doing and any and all information here would be valuable, it is also necessary to not get distracted.
Investors use tools called technical indicators to find patterns in prices of securities, cryptocurrencies in this case. Most technical indicators use the past performance of the security and allow the investor to predict the future price movements of the security. Now there exist many indicators looking at different factors that are correlated with the price of securities in multiple markets.
To name a few, there are the Fibonacci retracement levels, the Ichimoku Cloud, and more. With each of these indicators could come completely different sets of information of the same security. Now it is indeed up to the investor to make the decision of which one and how many indicators to look at before deciding their move.
However, many experienced traders go towards an approach that focuses more on reading the market itself and then using the information from the indicators to form a good contextual understanding. It is always reading the market first and foremost which has the most value and then the information from the indicators.
Hence, the advice that goes here is, don’t use too many indicators. Do note that many traders only look at the price charts of their focused cryptocurrency while many also like to compare its performance with traditional markets. This is where every investor has their own strategy so there can indeed be many variations. However, what should be noted is that you should not be looking at 8 different indicators before you make a trading decision.
Knowing when to take a break
There will indeed come times in anybody’s trading career, no matter how experienced they may, when they make a loss. It could be due to a silly mistake of getting some values about a particular security’s prices wrong in your head, or not executing a particular trade at the time where you could have exploited a very profitable market price swing.
Such mistakes and many more of the like are just some examples of what traders encounter as part of their careers. Being self-aware in these moments is heavily important as just how your chances of taking a wrong turn are higher when you’re driving with the wrong mind, your chances of making a wrong trading move are even higher as it is only a few clicks away.
Good traders hence, know when to tap out. After a beat down, your own psyche would be intensely hurt by the financial loss. Such losses are events your thought processes do not function at their best in. One’s brain will force themselves to recover the losses somehow and dive into the market again, which is the opposite of what they need to do.
After facing a loss, a good thumb rule is to completely avoid the market. Even if you may think you’re not at all affected, it is still good if not a better idea to stay away from the game for a few days.
Whether one accepts it or not, facing a loss induces a psychological burden on one who wants to recover the loss. This affects their ability to think clearly and increases the chances of them making a bad decision without even knowing. Hence, it is recommended you tap out for at least a couple of days. Get out, get some sun, a jog maybe or try to be productive in the other spheres of your life before returning back to the crypto world.
Even if you think there is a good opportunity arising during your break, sit it out. Do not take it. What is important here is to not recover the losses made immediately, but rather to survive. That is what sets apart good traders from the rest.
If it is being bullish you seek, bull to the max.
This is a strategy one is going to find very difficult to adhere to. Do remember, however, that it is indeed too difficult to follow rules that set one apart from the rest. It is only because a few can do it, only a few make it to the top. Most investors usually wait for the price to jump up a few proportions up from their initial investment before they set their eyes on cashing out. When one finds such security, which ‘wins’ so to say as it keeps rising in value, investors should focus on such securities for the long run.
If you make an investment of $100 into BTC and its value jumps up by 40%, do not cash it out. Invest more and more into the currency as it is showing its bull behavior at that point in time. Fight the urge to cash out and enjoy those extra $40 you’d be spending buying coffees for a week with. Instead, keep on adding to the position of the winning security until it shows some signs of a drop. That is when you cash out.
Doing so will allow you to catch gains that range in triple digits – 200% or 500% perhaps. While yes, these are indeed the returns fantasized by many cryptocurrency enthusiasts, they aren’t gained without proper discipline, a fair amount of fighting your urges, and proper timing. Don’t miss, and don’t be scared.
Do your own ‘thang’
As they say, every rule is meant to be broken. With cryptocurrency trading, indeed there are some things you should definitely avoid such as making high-risk trades when you are totally burnt out and in a place where you can make bad bad decisions.
However, there is also a room you must give to yourself to try out and experiment. This is the upside of working with the cash you’ve told yourself you’re okay with losing. You can learn with it and develop your own strategies. Be comfortable in listening to what you want to do and don’t really rely heavily on famous influencer marketers telling you how to move about the market.
Conclusion
A lot of people have the wrong idea about the cryptocurrency market in terms of the risk and returns involved and how to maneuver around them in order to maximize profits and limit losses. This article is intended to offer beginners a quick piece of advice in terms of how to approach the cryptocurrency industry with the right mindset. Alongside this were strategies to solidify their commitments to the approaches.
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