by saucesacla
I'm in the crypto game since end of May and I have invested in several cryptos, made a lot of newbie mistakes, made some money but mainly learned a LOT about investment strategies.
Crypto currencies investment is very specific and trading techniques don't really apply here. If you don't prepare yourself and educate yourself before investing, you will probably loose money or end up bagholding for a while.
It takes time to do your own research, understand the mechanics to be able to invest wisely and optimize your profit.
Here is a compilation of the rules I learned and I'm forcing myself to follow to avoid the common pitfalls.
Feel free to comment and add more rules if you have any. I will edit this post if I can recall some more later on and based on your feedbacks.
Rule #0: Invest only what you can afford to lose.
This is by far the only rule that you should have in mind anytime you invest money in something. And this especially applies to crypto which is more volatile than anything you could have invested in so far.
Don't ever take a loan or lend money to buy crypto, don't invest all your life savings or money you need for your daily life.
Rule #1: Do your own research.
Before investing in any coin, take enough time to thoroughly read as much as you can from existing documentation, whitepapers, posts, blogs,... Understanding what you are investing your money in is absolutely key to success.
Rule #2: Don't fall for the shills or fud.
Don't trust anyone, be critical and don't take any news, rumors or investing advice at face value. Subreddits, blogs, YouTube,.. are full of people shilling, fuding, and lying about cryptos to manipulate the price for their profit. Cross-check reading, facts checking and asking questions are your best friends and will help you debunk fake information.
Rule #3: Don't get too attached to any coin.
It's good to believe in a project but if you get too emotional it may blind you to hodl when it's time to sell and cut your losses, or to buy at ATH.
Right now, most of the crypto projects are over speculated and overvalued. Most of them will fail and their token price will probably fall down to 0. Some projects are more mature and are less risky than others. Usually their token is already priced in so they are good for long term investment, because the price will likely raise more steadily.
But most people will want to invest in more risky coins to get more reward. "Fortune goes to the bold" they say. If you go that way, you will invest in projects with merely a working product, and most of the time only a single whitepaper. Whatever extraordinary and awesome the promises these projects hold, the rise of the price will only be driven by speculation at this point so don't get too fanatic about it. You definitely will want to get out if you feel that the fundamentals have changed so set your objectives and exit strategy before investing.
Rule #4: Avoid buying during a pump.
You will experience FOMO many times and will be tempted to buy during a pump and you will probably end up buying at ATH. Pumps are usually followed by a dump or correction. Sometimes the dip is temporary if you get lucky, but most of the times it's not. So you can end up bagholding until it pumps again.
Rule #5: Don't try to time the market
Buying at the right time is the most difficult thing to do in crypto and timing the market is almost impossible.
You will see a lot of people providing trading technical analysis and trying to predict the next price movement. Sometimes these predictions will be realized but most of the times they won't.
Crypto markets are overly manipulated and it's difficult to predict prices when whales and bots are acting behind the scenes.
If you believe in the future of a coin on the rise, remember that "the best time to buy it was yesterday and the second best time is now". If the price goes x10 or more in a year or 2, it won't matter if you bought it at a price 20% higher back then.
However, if you can, be sure to always have some funds available to buy the dip. It will help you accumulate more hence making more profit when price will rise.
Rule #6: Dollar-cost average buying.
It will most of the time be better to buy regularly a smaller but constant amount rather than one big chunk at once. This is a proven investment strategy that will pay off in the long term.
Similarly, you can also average buy during a price dip to avoid missing the bottom that can be directly followed by a recovery.
Rule #7: Don't be too greedy.
Plan your strategy, set your selling price/ target profit % before buying anything and stick to it.
You will often be tempted to keep holding your coin during a pump rally, beecause heck, why should you sell when your coin keeps going up?
First, it won't last forever and every pump is always followed by a price correction.
Second, if you don't take some profit at some point, you take the risk to get no profit at all if you miss the ATH and end up stuck in the dump with a price below your buy price.
It's better to sell a chunk of your holdings to secure some profit and keep the other chunk to stay in the game for longer term
Rule #8: Cut your losses
Always set stop limit sell to avoid being caught in a dump and forced bagholding until price recovers. Recovery can take days, or months or it can never happen...
Rule #9: Diversify
Depending on your strategy, and your aversion to risk, it is often wiser to not invest in only one single crypto unless you only want to hold btc.
Choose coins that fill different niches and serve real purpose by solving a genuine problem. Follow rule #1 to make your choices.
Rule #10: To hodl or not to hodl?
Hodl = hold (you will learn about this meme soon enough when you have read enough sub posts)
If you are not day trading, your strategy will consist of either buying and holding coins for long term, or buying undervalued coins to sell part or all of them after price has gained xx %.
So the question is: is it a better strategy to just hodl coins and wait or being an active trader and leverage the fluctuations between altcoins and btc or ETH to optimize your profit?
You will get different answers to this question from people depending of their own experience and belief.
When I started investing, I had convictions and faith in some coins that I was planning to hold for very long term. For some of them, it still apply as of today and I'm still holding them because I have enough confidence about their future. But from a pure investment and profit perspective, having too much faith in a coin is not that good of a strategy.
From my experience, in the end the only coin to really hold is BTC, at least for now. As you will experience yourself, altcoins and btc prices are correlated but fluctuations of both depend of many factors.
Usually, when money flows to btc, and btc price rallies, altcoins prices are falling because people are selling their altcoins to buy BTC. This is especially true when a fork is planned few weeks ahead for instance because people wants to get free coins hence free money. It's basic human psychology
Several times I've been caught by these btc rallies and ended up bagholding altcoins because of people switching to btc. That's why it's important to regularly take your profit and convert back to btc, so you don't end up missing out btc price rally. Numerous times I've been experiencing this, and regreted not having converted back my stake to btc earlier because in the end it was more profitable to hold btc rather than my altcoins.
Of course, what I have described above is not always what is happening. You might see altcoins rally up while btc price is rallying as well. Staying well informed and up to date about the coins you are watching is important to be able to make good decisions and catch the pumps that can be more profitable than just holding btc.
One thing to consider also is that although BTC can be seen as outdated or obsolete features-wise for some, currently you can't workaround it if you want to buy crypto and basically make money. There are not many cryptos besides BTC, LTC or ETH that you can use to buy other cryptos. On most exchanges these are the only ones paired to altcoins so you need to trade for them first or buy them with your fiat money before being able to buy altcoins. Also when you'll want to cash out you will need to convert your altcoins to btc first and then sell your BTC. This is not the case on all exchanges and more cryptos pairs are being added over time.
But until more altcoins become as compulsory and compelling as BTC, you need to stay focus on one single objective when you trade or hold tokens: increase your BTC stake. The fiat price of altcoins are for most of them calculated from their price against BTC. To be clearer, If BTC price rallies up and your altcoin price stays the same, you are basically losing money, or to be more exact, your investment would be better if it was in BTC instead of your altcoin. You know, when I started investing I was very confident about the future of other blockchains and cryptocurrencies that would eventually take over BTC that I was considering obsolete at that time. But after some time, I understood that despite all its flaws, all the hard fork drama, BTC is still there, and is very resilient to all the FUD and attacks towards it. I'm still convince that there are many cryptos that do things better than BTC, that PoW is not ideal, etc... But here's the catch: crypto space is large enough to have competing blockchains that fill a gap or a niche left by others. In this perspective, I can still see BTC relevant as a store of value. I don't stay it will stay that way for ever, maybe direct bitcoin competitors will take over in the future, but right now, tbh, BTC has never been stronger. Just look at the price...
Rule #11 (3-in-1): Don't leave too much of your crypto on exchanges / Enable 2FA on your exchange account /Store your tokens on your own wallets and backup the keys
Crypto exchanges are not secure despite all the security measures put in place. Hackers know there is something to be stolen so they will do everything they can to find exploits to get those precious tokens stored in the exchanges. Many hacks have been successfully made so far (Mt. Gox, Bitfinex, e-btc,..) and a lot of people have lost their tokens. I'm not even counting all the scams and fake websites that exploit users carelessness to stole their private keys and tokens. Nowadays, some exchanges security has been improved to avoid these massive hacks, and tokens staked are usually stored in cold storage not connected to the network. Only tokens traded are stored temporarily on hot wallets.
Another thing to consider is that when you store your tokens on an exchange, you don't hold the private keys of your wallets. The only thing you have is an IOU from the exchange when you will want to trade or withdraw your tokens. In case of a hack, you have no guarantee that the exchange will compensate you.
Some exchanges are more reputable than others but most of them at least have enforced users to enable 2FA authentication, which is a bare minimum. I STRONGLY advise to use only TOTP-based or similar application for 2FA and NEVER use 2FA with SMS. Especially if you live in the US. It is far too easy to get your personal information from social networks and impersonate you to make a phone operator migrate your number to the phone of a hacker.
Many people will answer to never leave anything on exchange. I think this mainly apply if you want to hold for long term and never trade. Unless you transfer large sums and don't care about transfer time and withdrawal fees, it can get quite painful to go back and forth from your wallets to the exchanges, especially if you hold many different cryptos. So if you plan to trade from time to time, you can leave enough on the exchanges to make these trades and keep your main holdings safely on your hardware, software or paper wallets. When you're done trading for a while, transfer back your tokens to your wallet. Also, it could be wiser to split your tokens and store them across different exchanges so you split the risk of losing everything in case of a hack.
Note for newbies: when you start trading the first time and buy your first tokens for a modest sum, it's probably safer to let your tokens on the exchange until you get enough knowledge about wallets and know what you are doing. I witnessed numerous times people losing their private keys or password hence their tokens, because they forgot where they were stored or their hard-drive crashed, or they couldn't remember their password or lost their private key seeds.
You need to be very careful with your wallet so you need to learn how it works, the address, the fees, how to do multiple backups of your keys, etc.... Until then, and if you don't mind losing the tokens and money in case of a hack, then it's probably safer to keep them in a reliable exchange. You can be your own enemy sometimes...
When you will be experienced enough about wallets, the most reliable and secure option is to store your tokens in a hardware wallet such as Ledger or Trezor.
Edit1: added another Rule about exchanges and wallet. Than you for your feedbacks!!
Edit2: added a more detailed opinion about btc and why it is important to hold it, at least for now.