Looking to become a better crypto trader?
It’s a great investment considering the current price of cryptocurrencies like Bitcoin. However, your portfolio strategy is pivotal to your investment. The options are almost limitless when you create a portfolio.
So, how do you maximize your portfolio? Read on and find out some good trading strategies.
Understand the Cryptocurrency Basics
Making small investments or financial allocation to cryptocurrencies is easy enough. However, it doesn’t mean that you shouldn’t do your homework. You must always research before buying or investing in cryptocurrencies.
Before actual trading, you must first understand digital assets and blockchain technology principles. You must never come unprepared if you want to be a successful cryptocurrency trader. Approach this endeavor and use a long-term mentality.
While doing so, always prepare yourself for the market’s volatility. At worst, you’ll suffer from a 100% loss. You can prevent this as long as you have a good grasp of the basics.
Learn as much as possible about the teams behind the cryptocurrency before investing. Ensure that you understand the purpose of the virtual coin. Not all crypto coins can stay at the top for a long while.
Shifts can happen now and then. Always prepare yourself with knowledge.
Diversify Whenever Possible
Are you looking to decrease your cryptocurrency investment risks? Diversify your portfolio’s coins and avoid filing personal bankruptcy.
Your first move is to look at the market cap. Pick a few cryptocurrencies that pique your interest. The market cap is the price of the coin multiplied by the supply in circulation.
The higher the coin’s market cap, the less volatile it becomes. On the other side of the spectrum, lower market cap coins have higher percentage swings. They’re more volatile and are less desirable as investments.
The market cap has three sizes: large, medium, and low. The first one has over $5 billion in value while the second one ranges between $250 million and $5 billion. The last one’s value is below $250 million.
For example, Ethereum, Bitcoin Cash, and Bitcoin have large market caps. They won’t experience the 40-50% fluctuation compared to smaller altcoins. Ethereum prices are consistent during bear markets.
Depending on your risk tolerance, your diversification choices vary. If you’re careful, you can invest 90% of your portfolio in currencies with larger market caps. It’s especially risky when your mindset already sees cryptocurrencies as a risk.
Know When to Invest in Coins with Low Market Cap
If you have more disposable income, invest in cryptocurrencies with low market caps. These coins have a higher rate of profitability. Expect that you’ll get anywhere between 100% and 500% ROI.
However, the drawback is that lots won’t hold any value in the long run. Coins that end up becoming profitable will outweigh those that won’t.
A safe, low-risk strategy is to invest in all types of coins, regardless of their market cap. Use equivalent percentages for each one. The extra 1% will go to the large-cap coins to lower the risk further.
Hunt for Some Hidden Gems
Going against the grain and hunting for hidden gems sometimes pays. Some coins that people won’t focus on are the best ones to invest in.
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These hidden gems are hard to discover, hence the term. It’s time-consuming, requiring days of hard research. You’ll look through lots of whitepapers to uncover one or two of these.
Sometimes, reviewing over 50 coins will only yield a single worthy investment. Regardless, these will help your portfolio get out of its stagnation. It becomes more successful as time passes.
Diversify Across Industries
Another important portfolio-building aspect is your coin’s industry. Often, you’ll hear it as the coin’s utility. For example, Bitcoin’s use is for currencies and trading while Ethereum is for Dapp platforms.
Blockchain is not yet fully developed as technology. As a result, it’s hard to predict the industries that accept this technology. Various cryptocurrencies have various industries, and some will have overlaps.
This strategy of crypto trading prevents you from investing too much in a single industry. It’s rare, but sometimes some utility gets left behind, making the currency useless. You don’t want your entire investment to hinge on this single industry group.
Invest More in Your Preferred Industries
It seems obvious for some people. However, investing in your preferred industries is one of the best strategies when trading cryptocurrency. Never fall for the misconception that only one currency per utility takes all.
It’s far from the truth because each industry is sizable enough. It means they can support lots of life-changing cryptocurrencies. Many will fall from grace, but a few will survive and recoup your losses.
Remember, your cryptocurrency portfolio need not have the top three coins in an industry. You can still earn a massive profit when your currency is within the top 10 of its utility group. You’ll earn anywhere between 100% and 300% profits.
Think About the Coin’s Community
A strong community will increase the chances of the coin’s success. However, some rising cryptocurrencies won’t have a strong community behind them. These are exceptions, not the norm.
The coin must have an ongoing evaluation of the community trends surrounding it. As coins grow in the market cap, the community’s involvement must increase. These come in the forms of discussion boards and social media.
No matter the platform, these give a concrete idea of the level of community engagement. It mirrors the coin’s performance and trends. If you want to succeed in the crypto market, never underestimate the community backing it.
Create a Portfolio for Your Cryptocurrencies Today
These are some tips for when you create a portfolio. They should help you navigate the market and avoid falling into common pit traps. It ensures that your money will get more returns in the long run.
Looking for more ways to improve your cryptocurrency game? Read our other guides for more valuable tips.