When does the price go up or down? How to invest and diversify? Where to buy? These are all important questions when considering investing in cryptocurrency, but we often forget that the most “sensitive” factor in our decisions is us. The best strategy in the world can’t work without the right mindset.
In this article, we try to give 5 essential tips to anyone planning to invest or trade in cryptocurrency.
Let’s start with a premise: the principles in this article are not meant to be for “idiots” only. These are crucial principles, necessary for everyone, not only for beginners. The psychological mistakes we make are due to the way our brain works, to the way it tends to process and, sometimes, misrepresent information. You can be very smart and have a Ph.D. in economics, but you still need this article: our brain works for everyone in the same way. These seem to be obvious things, but a little bit of emotion is enough to erase any drop of common sense.
Ready? Happy reading!
1 – Don’t be fooled by price movements!
It happens frequently that a cryptocurrency has a fast price increase in a few days/hours. One tries to justify these movements thinking: “the market has found a new treasure”, “this coin has a superior technology”, “it has just made important partnerships”, “it’s being adopted all over the world”. This is usually all nonsense: the market is volatile, it only takes a few overrated news to make price rises. Avoid being interested in a certain cryptocurrency when the price is rising faster and faster: it’s like riding a roller coaster when you’re on top of the track. You may think there’s still a lot of fun, but there’s only the descent ahead of you! Very often in the crypto market what goes up simply comes down again. Don’t let the climbs make a fool of you.
If you have any problems, a rule like “I never buy cryptocurrencies that go up faster than the rest of the market” can help you get a clear point of reference.
2 – Don’t be fooled by sensationalistic news!
Let’s be clear: a huge part of the news about the crypto market comes from, at least, uncertain sources. Influencers’ opinions, unverifiable rumors, true but completely useless information. When you see that news, ask yourself a simple question:
Have I seen similar news before?
It’s a seemingly trivial exercise. Why is it actually important? Because you always need to have an exhaustive overview to understand how very often a piece of news can be repetitive. Let’s imagine, for example, we’re talking about the fact that the team has entered into a new partnership: is this relevant, or is it a team that makes a lot of partnerships and publicizes them all? If so, having partnerships ever had an impact on the price of their coin? If the answer is no, there’s no reason to think that a new partnership may have different effects, even if with big companies (usually, all sponsored partnerships are made with big companies). Trying to understand if there has been identical news in the past can also help to have a more exhaustive overview of the market, and this is always an advantage.
3 – Are you making money? Then try to be even more careful!
Imagine you’ve opened a long on BCH/BTC. Your position is going great. This is a very delicate situation: you’re probably euphoric; the joy for earnings risks clouding your judgment. There are two ways to make everything more dangerous, and your brain will certainly suggest taking one of them: 1) You decide to buy more BCHs: you’re earning big money, you can handle any downtrend. This attitude is very dangerous because markets can rapidly change direction, and you risk to amplify any losses. “Increase” simply means to make a new investment, but you have to consider it with lucidity: it’s dangerous to do it on emotion. 2) You decide to make further investments. You may think: things are going well for me, it’s clear that I’m making progress. Wrong! Our mind is often “selective”, and magnifies the scope of our successes. In a flash, you go from an open position to five because “lately I feel like I’ve improved”. Obviously, opening new positions hoping that “so far everything has gone well, and so it will go on” is a great way to commit financial suicide. A rule like “after a certain number of operations I stop for a few hours/days” can help in such cases.
4 – Invest only what you can afford to lose!
This is a teaching that should be carved into the head of every investor. If you need the money you’re investing for something else, then you won’t be able to handle it lucidly. Anxiety is the enemy of trading, and handling too much money makes it worse. If you invest the money you need for other purposes, you will end up liquidating at the first drop (“I can’t lose more, let’s close everything”) and leverage when the market rises (“my life is about to get better”). Avoid it! Needless to say, the same goes for your wallet: don’t compromise on a few positions. Diversify your capital. This way, average profits remain the same, but you don’t take the risk of losing everything due to volatility.
5 – Stay away from markets when you’re upset
Did you have a bad day? Are you nervous? In that case, stay away from the markets. Any strong emotion can amplify all the mistakes we’ve seen so far. Don’t throw away all your investments because you had a bad day! Generally speaking, what you have to do when you invest is to reread this article and ask yourself: am I making any of these mistakes? Am I getting overwhelmed by emotion? Remember that it sounds obvious, but it’s not. You may be thinking “okay, come on, they seem like common sense to me, I’m not crazy” but the markets are actually a lens that distorts the way we see ourselves. It’s very difficult to remain rational when the market goes up, and our confidence grows, and it’s difficult to remain calm when we are at a loss. It’s not something you can predict: in the markets we have to fight against our instincts and feelings – very unpredictable forces.
We hope this article helped you. You cand find more informations about how to invest HERE. How do you handle your trading? What are the most common mistakes you make? Let us know in the comments!