Many people are skeptical about investing in crypto and for a good reason. It’s not like a bad investment, but many people go into this world head first without knowing what it’s all about.
They read two blog posts, studied five graphs, and felt ready to become millionaires.
These people get crypto investors a bad name, and deservedly so.
Still, this is not a path you must take (some would even argue that it’s a path you definitely shouldn’t take). With that in mind, here are a few tips to help you avoid acting like a gambler while investing in crypto.
1. Learn about the subject
The most significant difference between a gambler and a lousy investor is that they openly admit they have no idea where the ball will land next or the next card. A lousy investor, on the other hand, feels like they’re doing something data-driven while they’re just as clueless about the outcome.
In order not to be a lousy investor, you should know something about the investment that you’re making. Study the history of the team behind the token and the platform that it’s on. If it’s a stablecoin, study the currency it’s tied to. If it’s a utility coin, study the problem that it solves. This will give you a better idea of what you’re up against.
Many online spaces have valuable information, but not all are credible or trustworthy. By following them, you can be the first to get all the valuable information.
Reading books on crypto is great, but this field develops so quickly that the latest information carries the most weight. This is why the information that you have is never final.
2. Develop a plan
You need to have an actual plan to avoid acting like a gambler. The first part of this plan revolves around finding and adopting a trading strategy. For instance:
- Value investing
- Dollar-cost averaging
- Growth investing
The key thing to remember is that while the strategy will give you structure, this only works if you’re consistent and disciplined. This is yet another way to separate yourself from a gambler.
You also need to learn the difference between those tokens you want to trade quickly and cryptocurrencies to hold for the long term. This is an essential part of your risk management and diversification strategies. You don’t want to make long-term investments with money that you can’t afford to part with.
Regarding diversification, you must find a way to split your investments across different tokens. Now, we’re not just talking about a different name; you need to find tokens that are as different as possible. This way, it is unlikely that they’ll lose value due to the same trend. Still, it might be even smarter to diversify by investing in a different asset type altogether.
Lastly, when investing, try to look into the technology behind the crypto. For instance, some cryptos are heavily invested in issues like AI development or sustainability. This latter is especially reliable since sustainability is one of the main focal points of the modern business world.
3. Automate your trades
Everyone gets too emotional to think clearly when the price drops and soars. This is why automating your trades is such an amazing thing. You set the parameters early (while still thinking straight), and the orders are executed as soon as the set conditions are met.
Before you start, you need to find the right platform for the job. Even today, you can’t just type in (or utter) a command – automat X so that it is Y. You need to learn how to do it, and some platforms have limitations. So, do your research (with the help of AI, this is a lot easier nowadays). The thing is that this is a bottleneck that you don’t want slowing you down.
First, you can set stop orders. This way, you can set a certain cryptocurrency to sell at a set price or set your platform to buy another currency at a certain price. Keep in mind that this method may backfire. For instance, people put their BTC to sell at $7,000 at one point, unaware that it would reach $19,000 during that same month.
Another thing you can do is copy trade. This is an idea that you’ll find a trader you trust (someone with an admirable trading record) and set your platform to copy their trades. When they buy, you also believe. Remember that while this is great for someone just learning the ropes, there’s an apparent lack of agency on your part.
4. Study the psychology of a gambler
You must first learn how a gambler thinks to avoid thinking like a gambler. This way, you’ll increase the chance of recognizing such behavior. Here are a few to help you understand how these things work.
- Gambler’s fallacy: This is an idea that past outcomes somehow affect a future. Sure, you’ve lost the last time, so you’re due a win next time. Crypto investors sometimes look at a graph and believe that since the value is decreasing, it has to start going up soon. Will it? It might, but there’s no guarantee, and it’s certainly not determined by its history.
- Confirmation bias: We’re all selectively filtering information. We tend to choose to believe in things that suit us better. This doesn’t have to be true, but it can drastically affect our decision-making.
- Positivity bias: Hope is born out of necessity. The thing is that people believe that good things are more likely to happen. While this idea can be comforting, the truth is that it may affect your decision-making in more ways than one.
- Survivorship bias: Because you’re listening exclusively to the stories of people who made it in the crypto world, you’ll get the impression that this is easier than it seems. You’ll also get an impression that it’s bound to happen to you (or that it’s, at least, very likely). None of this is the case.
- Echelon of commitment: This concept is “already too deep to get out.” So, if there’s no way back, the only way is forward. This means you’ll double down on your investment instead of backing out.
A the end of the day, it’s clear how these behaviors translate into trading. It would be incredibly easy for a trader to make the same mistake.
5. Only invest what you can afford to lose
The risk of an asset you’re investing in coming to $0 value is low, but it’s never 0%. The thing is that while you shouldn’t have a pessimistic mindset, there’s a chance that you lose everything that you invest. You shouldn’t plan on this but don’t pretend like it couldn’t happen.
To do this, you must start with an accurate assessment of your current financial situation. How can you only invest what you can afford to lose if you don’t know how much you can? It’s also important that you regularly reassess your finances. As your financial status changes, this figure will change, as well.
To simplify, set aside money that won’t jeopardize your needs when taken out of your budget. You can’t give your 401K, mortgage money, or money for utilities.
Another tip is that you should start small. With crypto, you have an incredibly low buy-in. This means you can start with a handful of dollars (less than you would need to buy stocks or commodities). After a while, you can increase this capital.
This is common sense, but you should always avoid borrowing to invest. This is a horrible idea that never leads to anything good. In theory, it sounds like a great way to increase your affluence, but you never know which investment will work in practice.
Base your decisions on data and not biases, and always have a plan
The choice is all yours, and you need to ensure it counts. Learn as much as you can about crypto, develop a plan, and give it your best to automate all your trades. Most importantly, learn where gamblers get it wrong to avoid this behavior.
Disclaimer: This article contains sponsored marketing content. It is intended for promotional purposes and should not be considered as an endorsement or recommendation by our website. Readers are encouraged to conduct their own research and exercise their own judgment before making any decisions based on the information provided in this article.
