Investing in crypto is like playing chess. You can do it with just logic and critical thinking and you could perhaps reach some success. However, when you learn a few openings, tips, and tricks, you’ll find much more success and even have more fun.
If you still don’t understand what exactly are we talking about, here are a few crypto trading tricks that you still haven’t tried.
1. Diversifying your portfolio
A lot of people enter the world of crypto trading to discover the next Bitcoin. In their mind, not buying BTC while it was still $8 each is a massive missed opportunity and, given another chance, they would put all they have toward this investment.
With this kind of mindset, it’s easy to see why diversifying doesn’t make much sense. After all, if you could go back to 2015, you would put all your money into BTC, not split it across other cryptos.
In reality, you don’t know which crypto is going to explode, and you never will. Placing all your money in a single crypto is a huge gamble that might not pay off. In fact, it most likely won’t pay off. The idea of diversifying your portfolio rests on the idea that you’ll miss most of your investments, but when you miss, you’ll miss small. When you win, you’ll win big, and it will make up for all those unsuccessful trades.
However, diversifying your portfolio is a science; you can’t just spread your investments randomly and expect a good outcome. What you need to do is check which new cryptos are already paving the way in 2024 and put most of your resources there. Adding a few riskier trades is fine, but only after this is done.
2. Smarter risk management
The most important thing you need to understand is the concept of risk management.
Investing an X amount can be worth the risk if the Y reward is big enough. If the investment money is low enough, even if the worth of your investment reaches zero, it’s not a catastrophe. Sure, this is an extreme example; however, when it comes to new coins (like ICOs and presales), it’s a possible outcome.
What you need is an equation that will tell you when your investment is worth it and when you’re risking too much for a suboptimal payout.
You need to understand that you’re actually making investments, which is why all your decisions need to be data-based. You need to understand what’s at stake and never invest more than you can afford to lose.
Buying cryptos is no different than buying stocks or commodities. This means that you shouldn’t just buy as if you were placing bets. Keep in mind that there’s nothing wrong with seeking a bit of adrenaline, but it’s always better to find yourself at a Bitcoin casino instead. Since you have access to both (the casino and the exchange), it should be quite intuitive that you need to keep them separate.
3. Robo-advisors
AI has computing capabilities far beyond regular investors. They can consider more factors, assign priorities more efficiently, and notice rising trends before even some of the most experienced brokers.
A lot of exchanges have picked up on this amazing opportunity and started offering a type of brokerage account that automates the process of investing with the help of AI-driven broker assistants.
The cost of using robo-advisors is really not that high, especially when you take into consideration that you get full automation of your trades according to the modern portfolio theory. More often than not, you’ll pay 0.25% to 0.50% of your assets under management.
Due to the lack of need for an elaborate infrastructure (once the system is already set up) you get to pay a lower fee compared to what you would pay an actual (human) financial advisor.
It’s also worth checking if you pay per trade or a monthly subscription.
Aside from just automated investing, you also get automatic rebalancing, tax-loss harvesting, and personalized financial planning. You can also access one of those goal-based accounts. For instance, you could set up a retirement account and this would adjust your investments toward this goal.
4. Copy-trading
Some exchanges allow you to copy-trade, which means that you can identify another (more experienced) trader and have your platform (and portfolio) mimic their trades. This is great for newcomers to the industry who are yet to master all of its sides and aspects.
One positive side of copy-trading is the fact that you don’t really have to understand what’s going on. Whatever happens to the new AI-driven token is of no concern to you; as long as the trader you’re copying buys/sells, you know exactly what to do.
This brings us to the negative aspect of copy-trading, which is the fact that you’ll become complacent.
The fact that you don’t have control over your funds is not as big of a problem as some believe it to be. Since you don’t have any knowledge of the industry, what would you do with the control, even if you had it?
The problem is that this way, you’ll never learn. Why? Well, because you don’t have to! While you still have an option to learn, you’re losing all the incentive, which can be quite problematic in the long run. By the time you’ve been crypto trading for a year or so, you’ll still be where you started (knowledge-wise). Worse yet, the potential success of “your” trades will make you overconfident.
5. Psychological analysis of your own behavior
Have you ever paused for a second to consider what makes you invest? Chances are, if you did some light reading on the subject matter and actually paused for a second to think about the factors that affect you, you’ll quickly recognize the psychological trigger behind the decision.
This will help you figure out if it’s really the right decision or if it only appears to be so. More importantly, when you understand why, you’ll have an easier job at making the right decision.
First, you need to understand the concept of positivity bias. This condition makes you believe that good things are more likely to happen than bad ones. Just because it’s comforting, you’re likely to believe that this next crypto you’ve encountered has to be the one you’ve been waiting for all along.
Second, you should learn a thing or two about FOMO. The fear of missing out is extra strong in the crypto community since the missed opportunity of buying BTC pre-2017 is still fresh in most people’s minds. They’re determined not to miss out on the next opportunity, as well, which akes them more susceptible to rash decisions.
Lastly, loss aversion is a phenomenon of positivity bias that drastically impacts your behavior. It’s the opposite of positivity bias. It’s not that you don’t believe that the coin in question will go up; it’s that you fear loss more than you hope to win.
Learning a thing or two about crypto will make your profits more consistent
Ultimately, while there are a lot of people who make money on crypto without any of the above-listed, applying these tricks and methods will definitely improve your chances. Learning how to diversify your portfolio, manage risks better, and where to look for guidance when you don’t have much experience in the field will always help. Moreover, understanding how your decision-making process works is the first step in improving it.
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