The 10 Commandments of Successful Cryptocurrency Investing

stock investment

I could attract your attention with a picture of a Ferrari, beautiful girls, and booze, but that’s just what the average broker would do to attract your funds. At the same time, the most successful trader in your vicinity is probably picking up his kids from school in a Honda while checking his CASIO watch to make sure he is on time.

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So what is the difference between cryptocurrencies and traditional investment vehicles like stocks, bonds, and national (fiat) currencies?

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1. Keep a notebook, for real

Yes, a paper one. It can be a Google sheet if you must. Keeping track of your investments can help you stay focused on the work that has been done, and gives you a detailed overview of the transactions.

2. You are in charge

Do not follow anyone’s trade, whoever that person may be. Trading is a path you must tread alone. Discussing it with other people will mostly lead to bias. Remember that the majority of people lose their pants twice and eventually retire. The incompetence of people in making their own decisions about their own capital leads to the creation of platforms like eToro, which I see as a negative phenomenon.

3. Make a decision and stand behind it

Various researches show that when students change their answers in the test, it is most beneficial. With that being said, we are not taking a school exam here and there is real money at stake. Even a 0-difference trade can incur costs via trading fees and roll-overs. Use trend trading, remember that timing is much more important than asset and direction put together. With that being said, the moment you realize that the decision you have made is wrong, close the position regardless of PNL. This will save you money in the long term. Retrospectives are good, but keep them to a minimum because dwelling on past mistakes drains your energy in a bad way.

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4. Keep your trading private

If your real goal is to achieve greatness in life by leveraging the market, surely there is no point in discussing and bragging about your trading. If you want to develop the inner power to seamlessly make good trading decisions, you must first have the strength, to be honest about your goals and the willpower to control your emotions. Not to mention that to an experienced trader, looking from the side on someone who brags about a couple of pennies is the most obnoxiously funny scene possible.

5. Obtain Domain-knowledge

In the same exact manner that commodities trading requires a basic understanding of the harvest industry, trading cryptocurrency requires at least a basic understanding of cryptography, technology, and guess what, code. If you rely on tunnels, Fibonacci levels, and pumps & dumps, well, good luck. In a retrospective, many cryptocurrencies that enjoyed recent success are also the most innovative ones and not just Bitcoin/Litecoin clones with minimal changes.

For example:

  • Monero with its enhanced privacy and dynamic block size.
  • Dash with its masternodes.
  • Ethereum with its rich and far-reaching eco-system of smart contracts. Don’t be ashamed to look at the code when scouting for early investment opportunities, it will tell you much more than ICO landing pages and marketing campaigns.

6. Select the right broker

Always work with well-known, and preferably regulated brokers (at the moment of writing this article, none of the cryptocurrency exchanges fit this criteria. Bitstamp is an EMI, but not a regulated broker). Make sure that your broker does not hold positions against his clients, otherwise it will be a battle you cannot win. From my experience, all major brokers have ‘trading’ and ‘risk management teams that perform a range of functions, from enlarging margins (spreads) for specific customers and suspending market orders in highly liquid times, to liquidating margin positions that might turn insolvent.

A good way to recognize such a broker is by extreme levels of leverage (100–200 or sometimes even 500) with little to non-existent evidence of capital. It might even be mentioned somewhere in the terms that you are trading CFDs against the broker and not actual Bitcoin.

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7. Mind the risk

Forex is actually one of the most solid and low-risk markets out there, which comes as a big surprise to many traders. What makes Forex so dangerous to amateur traders is the high leverage offered by ‘brokers’ and used by ‘traders’ (anywhere between 100x–500x). Just to compare, regulated stockbrokers will usually offer 1.5x or 2x leverage at most on stocks, and most banks will not allow even the most experienced trader to exceed 20x leverage.

Bitcoin and Altcoins are not nearly as solid as Forex, and at times even more volatile than stocks. I would say that as of today, Bitcoin and the major liquid Altcoins are at least 10 times more volatile than the Forex majors, and thus more dangerous. Keep that in mind when leveraging. Just to compare, your 100x leverage on Bitcoin is equal to 1000x leverage on a similar trade on Forex majors (yes, immediate liquidation with the smallest counter-movement on the market). In general, there is no magic formula, and in the end trading results are a statistical derivative, there will be losing trades, and pretty bad ones as well.

A good way to cope with the risks and improve your results is diversifying your portfolio with a large variety of assets (which you deem to have growth potential). If you cannot take the risk, there are plenty of safe jobs out there.

8. Do not use margin

It creates or rather enlarges, the already existing conflict of interests between you and your broker.
In general high rollovers, varying margin levels, and hanging PNLs will affect your decision-making process negatively, especially as a beginner. If you do decide to use it, be careful. Use up to 5x margin with high margin levels, but just as a complementary tool to reach the position size you would like to have, side-by-side with having most of the position in spot.

On a side note, be aware that margin costs (rollovers) can reach more than 100% a year in some cases. In general, a trading spot is the best thing you can do for yourself. By eliminating the time factor and the unneeded pressure you allow yourself to make the right decisions, regardless of how much time it takes. This is sometimes referred to as value investing.

9. Treat your money as if you were a surgeon operating on his patient

Do not try to make money for short-term purposes. Not every asset on every market is tradable 100% of the time, in fact, the markets are only in a confident trend around 10% of the time.

Much like a peasant collecting his harvest, you can only take what the market gives, and sometimes there is no harvest on a certain field for months or even years. In fact, a wise trader will be out of position, most of the time when applying a short-term investing strategy, to achieve a higher ‘sharp’ indicator.

Your money is your inventory of working tools or buying power if you like. Acknowledge that, and that the only thing that you can purchase with it is non-tangible trading assets, as long as it is in your broker account, and thus, avoid stupid unproductive comparisons in case of losses.

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10. Look at the macro picture

In general, crypto markets are going up in the long term, as can be seen by indices such as CRIX. But in any case and with any asset, avoid staring into the screen for long periods and going into high resolutions such as 1H, 30M, or even 15M in the graph. The only things you will find there are wasted time and distracting white noise.

11. Last but not least, trading in a marathon, not a sprint

It requires lots of durability. Start running slowly to warm up, then increase your pace and intensity. Measure your decisions long-term and do not stick in front of the graphs more than you have to, it will change nothing.

Instead, get a hobby or two, and enjoy life.

‘Everyone lies’ — Hugh Laurie, House MD