Cryptocurrency is perhaps one of the riskiest investments to date. Many investors and traders were caught off-guard by the crash in February 2022 amid rising tensions globally. However, this does not need to deter you from investing, but rather more prudent. If you’re smart about your investment, there are ways to maximize your chances of making a profit and reduce your odds of going broke.
Cryptocurrencies are notoriously volatile, and it may be difficult to recover from a crypto crash. If you just lost your money, you can read this to start again. Here’s how to invest in cryptocurrency and do it safely:
Buy The Rumors And Sell The News
This is one of the classic crypto lessons and a popular crypto trading tip. It means that you should buy when there is a lot of buzz around an asset, even before it has been released. You don’t need to be rich to do this. You can start by setting up an account with an exchange like the ones in this full article and then placing your order immediately (but only after doing some research). The price will likely go up after your purchase because you’re buying at a high point. When it does, you can sell for profit.
However, you should also learn about how markets work. The crucial factors that affect prices (and should be studied) include supply, demand, and speculation. For example, there may not be enough supply yet, but lots of demand for something new like cryptocurrency. Perhaps there isn’t much demand, but speculation about its future potential drives prices up anyway.
Diversification Is A Must
Diversification is one of the crypto lessons to protect yourself and your investment portfolio from risk. As you can see, cryptocurrency is not the only game in town—there are many other asset classes, each with its risks and rewards.
Investing in different types of assets protects against risk. By investing in different ones, when one type of investment goes down, other types may rise or stay stable. By diversifying, you’ll have something to fall back on when your favorite crypto gets hit hard by market forces.
Follow The Money, But Don’t Be Hasty To Buy Or Sell
As a crypto investor, the best way to make money in crypto is by following the money. The whales are buying and selling massive amounts of cryptocurrency daily; this is what you should be watching. Learn from these whales, but don’t get too hasty about buying or selling yourself. You may get emotional and sell at a loss if your investments go down in value for several days. Similarly, you might purchase large quantities of cryptocurrency at the top of its price cycle before it starts dropping again.
The point here is that if you base your investment decisions on news reports instead of following the money as closely as possible, you may lose more money than necessary later. Some news reports tend to be very short-term focused, while investing should be done at least somewhat long-term.
Use Limit Orders, Never Market Orders
You might not know how to use limit orders, but they’re a crucial trading tool to avoid mistakes. Limit orders let you set a price at which you want to buy or sell a stock or cryptocurrency, and then the order is executed when the market reaches that price.
Limit orders are significant for crypto investors who don’t want to pay more than a certain amount for an asset. It’s also great for those who would rather wait for their desired price instead of buying their assets at any current market rate. If an asset’s value drops below what you’d like to pay for it, your order will be delayed until its value rises again. If an asset’s value rises above what you’d like to pay for, your order may never execute.
Of course, there are other ways around this problem: some traders prefer market orders (which trade instantly), while others use stop-losses (which automatically sell once the specified loss level has been reached). When selecting strategies in any speculative investment environment, always do your research first.
Invest For the Long-term, Not Short-term
If you’re looking to invest in cryptocurrencies, consider that long-term investments are rewarded. Don’t trade based on your emotions or what the market will do next week or next month. Instead, look at things from a long-term perspective and stick with it — even when things get tough. Remember: While traders are rewarded for their risk-taking, investors are rewarded with patience and long-term vision. Focusing on these lessons as a crypto investor or trader will help you avoid huge losses in another crypto crash.
Crypto is a volatile market. Some cryptocurrencies’ dramatic rise and fall exemplify how quickly things can change within this space. This volatility makes it difficult for new crypto investors to know when they should get out or stay in and reap profits from their investments. However, by using these crypto lessons, you can limit the consequences of a crypto crash on your finances.