The crypto market is undoubtedly the most burgeoning opportunity for investors, but do not confuse them with lottery tickets.
It is that part of the financial markets that invites most seasoned investors but can prove to be extremely nauseous considering its volatile nature. And, for the amateurs, it’s a whole new game altogether.
Although crypto trading bets on the most prolific return, it is extremely tricky which makes the investors more probable to imminent risks. You can lose a few large short-term bets in a row, and end up blowing your account, or, be one of those unlucky ones who lost 80% of their wealth on paper. This is only the case with investors who enter the market without proper research, those who don’t cut slack on hard work – crypto has rewarded them with extraordinary returns.
The king of cryptos, Bitcoin has seen almost quadruple growth since its inception. The extraordinary growth along with sudden price movements gave rise to the term ‘HODL’ – a crypto jargon which basically means holding investment positions. However, still, it lacks the presence of tried and tested traditional methods of investing. Let’s admit it: Bitcoin is here to stay!
Irrespective to its sudden fall by about 65 percent in 2018, Bitcoin now has acquired 65% of the total crypto market that reflects the interest of investors in Bitcoins and avoid the risks of altcoins.
If you want to nullify the risks, you are not choosing the right space for trading. Crypto is a game of risk and that’s what makes it so profitable. In the words of the one and only Mark Zuckerberg, ‘the biggest risk is not taking risks at all’
You certainly can’t reduce the risks to zero but you can minimize the risks with proper risk management. Here’s how:
Learn the art of differentiating investments
Diversification is the key strategy of successful investment plans, irrespective of the crypto trade. A crypto portfolio that is diversified in various assets and within them increases the probability of gaining higher returns and reduces the probability of risk.
It allows you to avail the opportunity of capitalizing in the market irrespective of different movements, like for example, hedging against volatility. Both, for the opportunist and for the conservative, this is a go-to strategy, for obvious reasons.
Mixing your portfolio with different kinds of investments to maintain the mix for long-term investment success can get really difficult. The urge to fill yourself with Bitcoin, (because it is ruling the headlines) can take over, but don’t let it rule you. The principles are the same, no matter the present or current scenarios.
I know what you are thinking, that the crypto market is so wide with thousands of coins, how is it at all possible to find an ideal mix. The availability of the innumerable number of digital assets explains the ingenuity of the market.
To rescue you from this mess, the tokens are widely divided into five categories – Infrastructure, Tokens, Entertainment, Financial and Services. In the world of crypto, many tokens are highly volatile and yet to prove its legality, which results in varying degrees of ups and downs.
Ideally, if you follow the art of differentiating investments, you will have to diversify your assets among the various asset groups or categories mentioned above. This would effectively help you manage the risk. And lastly, no matter what strategy you follow, it shouldn’t be taken in a rush, or haphazardly.
Research projects, list down the pros and cons considering their volatility, market cap, legality and everything else. Once you are satisfied with the research, decide your mix, and spread your investments wisely. There are many sites who can help you with the right information on latest trading opportunities.
Don’t let emotions ride your strategies
The volatility of crypto markets triggers emotions. But if you have developed your strategy, you need to stay put. Don’t make hasty decisions in the fear of missing out. The latest trends emerging out can invite your participation, especially when it’s rising beyond expectation. But don’t get yourself involved in anything that you haven’t yet researched.
The fluctuation of consumer sentiment is too difficult to resist, but your only escape from falling in this trap is to follow the strategy very closely. I know it’s much easier said than done. At that moment, you just tend to follow the flow, see your peers doing the same and fall for it. This can also be avoided as there are now many platforms and applications which help you prioritize your strategy over emotions.
Seek out for such platforms, and once you start prioritizing strategy over emotions; it will be very easy to develop a viable investment strategy, which helps you withstand the crypto market idiosyncrasies. It’s not very difficult if you just know how to hold your horses, in simple words, have control over yourself. For that, during investment planning, it’s always wise to follow your head, not your heart. They must be governed by logical decisions. Do not let your immediate emotions conquer.
Establish a base price
Just because I asked you to manage your risks efficiently, doesn’t imply that you need to completely ignore the movements of the market. After all, what’s the fun in trading if you don’t play with the ups and downs. In fact, sometimes, just sometimes, it is always better to abandon your strategy and go with the flow.
Earlier, there weren’t many tools to help you manage the risk. However, today, when technology is developing every minute, managing the risk in your digital assets, would not be a problem. Basically, it avails you to features like trailing stop losses which allow you to set a basement price, which in cases of sudden or spectacular price drops, help you to mitigate the losses.
With this, you can endure how much risk can you take, or are able to endure, and if it crosses the limits or ranks, you can drop the trade right away. There are also certain short and long positions that offer a hedge against losses. Long story short, you must make the best use of present technology to manage your risk, increase your confidence and develop the best of strategies.
Just like every other form of trading, cryptos has its own fair share of risks. If you know how to diversify your portfolio, keep your emotions in check and establish a base price for their assets – you are already well-equipped to manage the risks.