10 Things I Wish I Knew When I Began Trading Cryptocurrencies
Tags: Cryptocurrency Investment, Bitcoin, Trading, Cryptocurrency, Finance

by Noah Newfield

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Hello everyone. A little backstory about my trading history before I share what I’ve learned, just so you can get a feel for where my advice is coming from. I’ve always had an interest in investing, mainly traditional markets, but all of my attempts to participate fell short. I constantly felt like a small fish in big ocean. The crypto ocean is pretty big too, but since my start I’ve learned to navigate and survive here.

I had known what Bitcoin was for a while because I had always been interested in online poker. Not that I was ever a great player, but I loved the statistics and the game theory. I bought my first bit of bitcoin towards the beginning of the mania of 2017 and continued well into the bubble. That 17k price tag still hurts to look at. Luckily for me I’m a big fan of the wild west that is cryptocurrency investing, so I immediately moved all of my BTC to alts. I doubled my portfolio’s USD value in the first week of trading and then proceeded to hold onto those alts as they fell out of the sky and my portfolio’s USD value was half of where I started. Through some shrewd small plays and craftiness I managed to keep everything around even by the time we bottomed out. From there I decided to reevaluate my strategies and commit to becoming a skilled trader. These are the things I wish I knew when I had started.

1. Buy Low/ Sell High

A phrase I can remember my father telling me before every purchase I made while growing up. It didn’t even apply to the situation most of the time, he just liked to say it. It’s the most straightforward and honest investing advice someone could give you, but the human mental heuristics for trading usually have us doing the exact opposite. I couldn’t tell you how many times I repeated this phrase in my head looking at a chart before I understood what all of these investment books were trying to tell me. It’s important to note that you won’t get it right off the bat. Even after you understand the phrase, you need to internalize it to the point where you’re trading habits become a clear reflection of its use.

April 3rd was a great time to buy, while May 3rd was the perfect time to sell.

2. Making money is straight-forward, keeping it can be complicated

Risk management is the most important investing skill. You’re going to lose trades, a lot of them. The best traders make their fortunes on 20% of their trades, “homeruns”. The other 80% are a mixture of small wins and losses. Notice how there aren’t any “homerun” losses. This is the power of diversification; owning many, fundamentally different cryptocurrencies disperses your risk, so a single underperforming asset does not bring down the whole ship. By knowing how much of your total portfolio value you’re willing to risk on any single trade you can sit at a risk level you’re comfortable with, knowing that your worst case scenario has already been prepared for. If you are looking for an easy way to deal with this, you may want to check out one of the crypto trading services that help with diversification, like Elevatyr.

3. Plan out your trades

One of the best tips to help yourself improve as a trader over time is to plan your trades entirely from start to end, and keep those plans to look back on as references. DO NOT BUY THINGS ON IMPULSE. Prices can move very quickly, sometimes a quick trigger finger is needed, but the best trades you make will be the ones where you have a clear entry, exit, and stop loss planned our days or weeks in advance. Planning your trades also gives you the ability to learn from your mistakes. In a 24/7 market like cryptocurrency there are always charts to be looked at, so even if you make a plan for trades you decide not to go in on, you’ll observe and learn more about the market at a very accelerated rate.

4. Shop Around

Have you ever gone to buy something and decided against it because you knew you could get a better price elsewhere? I think most people have had this experience at some point, even if it is difficult to think of a specific example. While it may not be a necessary step when buying something trivial, like paper towels, for significant purchases like a car, house, or in our case cryptocurrencies, it is absolutely in your best interest to do so.

Prices can be dramatically different across multiple exchanges. You also want the best price.

Although it can be time consuming, you can get better value out of the investments you plan to make by comparing the trading price of your desired tokens across all the exchanges that offer them so you make your trades at the best price available. Elevatyr makes this easy by executing your purchases at the lowest price available and your sales at the highest price available, across all of Elevatyr’s supported exchanges.

5. Risk and Reward

Risk and reward is the underlying mechanism for how we make all of our decisions, including how we invest our capital. Intuitively, as a general rule, when you look to invest in something risky, you expect to have the potential to receive a reward that is aligned. Put simply, the riskier the investment the better the potential reward to look to receive, and conversely, the more conservative the investment, the less significant the reward you reasonably expect to get back. Ensuring your risk and reward are in balance is key to long term success, and can be achieved by many of the lessons here, including diversification and consistency.

6. Greater Fools

Less of a trading tip and more of a lesson in market theory. The term greater fool, sometimes called a “bagholder” in crypto, are the people who bought at the very top, held on as it dropped hoping it would go back up, and eventually had to sell near the bottom. Everyone has bought the top at one point another, so technically we’re all greater fools for making someone else money.

Pump-and-dump schemes are designed to take advantage of greater fools.

This theory goes to show that markets in general are a 0 sum game. Someone has to lose money for you to make money. You are actively playing against the other traders in the space to take what is theirs and protect what is yours. Understanding this will help you be more careful with your capital and weary of people offering free “homerun” advice.

7. Bear Markets Build Character

This one’s a tough pill to swallow. There’s no way around it. When the market’s going down, we retail investors don’t have the power to turn it around. On the bright side, the hardest steel is forged in the toughest fires. While bull markets are full of exuberance and irrationalism, bear markets are perfect for honing your skills, doing research and focusing on your personal trading practices. Everybody likes to be in when the market is skyrocketing, but being able to make money consistently in any kind of trend is the mark of a good trader. Everybody’s a genius in a bull market. The key to succeeding in a bear market is to prepare beforehand and to not lose sight of the goal or your nerve when things are the most bleak.

8. Value Investing Vs. Speculation

This isn’t advice to use either as your investment strategy, but advice to be aware of the different ways these assets prices move based on their level development. Value investing is a strategy based around calculating the present and future value of a company. To do this you need to evaluate a project which involves taking a look at revenue, projections, dividends and many others.

Speculators boom and bust with the times and are less likely to benefit from long term growth.

The speculation strategy I’ve learned since my humble beginnings is that human speculation will almost always cause more volatile price action for project evaluations. Take note that as this market becomes more mature these coins with billion dollar evaluations may have to come back down to earth with more realistic appraisals likely based on the service they can provide. The lack of structure and influx of speculation in the space right now make it a traders paradise if you know what you’re doing, but treacherous if you’re not up for it.

9. Who to take advice from

This a tough one. The answer is definitely not me. If someone says that you should take their advice, it’s a big red flag that you shouldn’t. There are a select group of influencers/ traders who I consider honest and well intentioned but that’s my bias opinion. The strategy I’ve implemented is to take a look at everyone’s advice with an open mind. I’d study a chart written in crayon if I thought there might be some money to be made and being open to other opinions is vital to not getting stuck in your own bias. There’s nothing wrong with getting some new information and scrapping your previous plan. Maybe your trade wasn’t right but at least your capital is safe. My best advice for taking other peoples’ advice is to diversify the information you receive from others and verify it with your own research. Having a healthy amount of differing opinions from knowledgeable traders will help you get a better perspective on the market and should help your trading. And as always DYOR (do you own research)!

10. Diversification

The average advice you’d get about diversification would be to split up your portfolio between small, medium, and large market cap coins to hedge against the volatility of the smaller assets. Smaller often means more volatile, but because we are operating in a market power largely by speculation about the future potential of blockchain companies, the value of an individual cryptocurrency does not indicate the health of the underlying organization behind it to the same degree as stocks do on the traditional market. Therefore other factors, and other methods of diversifications must be taken into consideration.

Owning a little of many cryptocurrencies, means your medium losses can be offset by large gains.

Another method of diversification beyond overall value that can be used is the diversification of asset classes. This can be taken at a high level — having a diversity of holdings from cryptocurrencies to stock and bonds and other assets — or within the cryptocurrency industry itself. For example, rather than holding 30 different tokens each aiming to be the one general digital currency, it can be beneficial to instead hold 3–5 of those, 3–5 privacy tokens, 3–5 data storage tokens, and so on. Thus, if a major player takes over one vertical within the market, hurting the value of its direct competitors, you hold enough other types of tokens that the brunt of that effect is limited, and you enjoy opportunities for success in other areas at the same time.