My advice for cryptocurrency trading
The “safe” strategy
First you might want to start with “Blue Chip” cryptocurrencies, these are the cryptocurrencies with a market cap of over $2 Billion.
Some sources claim that cryptocurrencies with a market cap greater than $30m qualify as blue chip cryptocurrencies so if you want a broader perspective you go to the coinmarketcap website and look at the cryptocurrencies with market caps above $30m. I prefer to stick with the $2 Billion qualifier since that sets the bar higher therefore making the investments safer in my opinion.
When is the right time to buy?
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I like to follow two rules regarding this.
Rule 1: Get your foot in the door now
No one can tell for sure what the price will be in the future so if you feel confident about the coin you have chosen then buy a small amount to set your foundations.
As long as you have picked a good coin then it is better to get in now and hold for the long term, if you try to time the market, you risk the chances of buying the coin at a higher price later.
Don't be this guy:
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Rule 2: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
If you want to wait for a better price you should buy a coin when it is being “dumped” (investors are selling which causes the price to go down), if you have picked a good coin do not worry the price will soon recover and could even go beyond the current All Time High (ATH).
You can setup buy orders on an exchange if you anticipate further price drops, you can also add the coin to a price tracking app like Blockfolio and setup some price alerts (this will be described in detail further down).
Buy Low, Sell High
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Ideally you want to get in early on a coin when it is nice and cheap and sell it after the price has gone up substantially, for example if you bought 300,000 Stratis at $0.01 on August 12th 2016 you would now be a millionaire, having have gained over $4.1m from an initial $3,000 investment at the current price of $13.90 per coin.
If you are not an early adopter and missed out on the bottom prices you can still buy the occasional dips.
Let’s go back to Rule 2: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”. This refers to waiting when everyone else is buying and buying when everyone else is selling.
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When everyone else is greedy and buying, this causes the price of the coin to keep rising and you risk overpaying for the coin, especially if there is a later price correction (a temporary price reduction).
If you are seeing a pump without any solid reasoning behind it (no new developments, no partnerships, no important news or updates) then you could be better off waiting for the price to dip again before buying.
HODLING
Yes, you read that right, hodling. This is the practice of holding on to a long term investment without giving in to the urge to sell, it is misspelled deliberately for dramatic effect to mimic an investor frantically trying to type the word “HOLD!” If you plan to join the legion of cryptocurrency hodlers then here are some useful terms you should know:
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• Sats – Short for Satoshis, a division of Bitcoin, 1 Satoshi = 0.00000001 Bitcoin.
• Fiat – Fiat currency, your standard currencies such as USD, GBP, EURO, CNY etc.
• ATH – All Time High, the peak of a coins price.
• Bull Market - a market in which coin prices are rising, encouraging buying
• Bear Market - a market in which coin prices are falling, encouraging selling.
• Feeling Bullish – Feeling positive that an investment will grow in value
• Feeling Bearish – Feeling that an investment will lose its value
• Weak Hands – People who buy a coin then sell as soon as the price dips
• Strong Hands – Investors who hold on to coins not matter how low the price dips.
• Bloodbath – When a large number of coins lose a lot of their value.
• Moon – A swift and very high price increase.
• Shakeout – When a coin price dips so low and many worried investors sell at a loss, this can also be caused by a “whale” artificially reducing the price.
• Whale – A very large coin holder, they can influence the price of a coin through buy walls, sell walls and selling off coins.
• Buy walls – When whales try to encourage the growth of a coins price through massive buy orders.
• Sell walls – When a whale tried to suppress the price of a currency (usually so they can accumulate more for themselves). Example imagine a coin costs $4 and has 5m total supply and there is a sell order for 1m coins at $4.2 each, the price will not likely go above that price.]
• FUD – Fear, Uncertainty, Doubt. People who spread bad news about a coin to cause investors to doubt their investments and sell or to prevent other investors from buying into a coin. Can be used by greedy investors seeking to accumulate more coins.
• Pump & Dump – A scheme where groups buy into a coin cheap and spread hype causing unsuspecting investors to buy in, which then causes the price to “pump” up, then the new investors are “dumped” on by the early investors as they take their profits. After a dump the price goes down and the duped investors are known as “bag holders”.
• Bag Holder – An investor who is holding onto a possible bad investment also known as being “left holding the bag”, they could be the victim of a pump & dump scheme or they simply bought into a poor coin at its ATH then is left to hold the coin as its price drops.
• New Blood/Fresh Meat – Another word for noobs or new investors.
• DYOR – Do Your Own Research
• Premine - A premine is where a developer allocates a certain amount of coins to a particular address before releasing the source code to the open community. Usually when this happens the developers have reserved a certain amount of coins for themselves for a particular reason.
Many cryptocurrency investors claim that they have made more money from holding onto an investment long term instead of trading and I would also advise everyone to hold and only trade if you have previous experience, trading is not for noobs.
Taking Profits
Just because you are a holder that does not mean you cannot take profit from your investments.
Why would you want to take profit?
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• To secure your profits in another form such as Fiat currency.
• You can take profits in Bitcoin and then use the Bitcoins to buy into new cryptos or increase your holdings in current altcoins.
• If your investment has pumped a lot (3x-10x) you can take profits into Bitcoin or Fiat and buy more of that same coin when the price inevitability dips.
• To diversify into traditional investments such as gold/silver, index funds, mutual funds, REIT’s etc.
If you want to take profit on an investment I would recommend cashing out no more than 50% if you believe the coins value will continue to increase in the future.
Let’s call this the “Rake” method, you take out a certain percentage of profits every time your investment reaches an all-time high, this can be very effective just before a bear market where the prices of most coins will drop as investors sell off their coins, allowing you to buy them cheaper.
What causes a coins price to increase?
• New developments and announcements
• Hitting roadmap deadlines
• Coins getting added to bigger exchanges like Bittrex & Poloniex
• News & hype
• Pump & Dump groups
• Real world application
• Low supply & high demand
One reason for a high increase in a coins price is the supply of the coin, naturally if something has a limited supply and high demand its value will increase since it is not easily accessible.
You can use this fact to your advantage by investing in coins with a total or circulating supply lower than 100m coins but preferably less than 50m coins.
You can also use the coins supply and market capitalization to accurately calculate the price using this formula:
Marketcap/Circulating Supply = Price
For example Bitcoins current market cap is $201,262,193,405 and the circulating supply is 16,816,975 BTC, so:
$201,262,193,405/16,816,975 = $11,967.8 the price on the 21st of January 2018..
Let’s say you came across someone who predicted Bitcoin to have a market cap of $1 Trillion by 2019, then again you would calculate it like this:
$1,000,000,000,000/16,816,975 = $59,463.72 predicted price by 2019.
You can find out a coins supply and marketcap on coinmarketcap.com.
On the other hand just because a coin has a low supply that does not automatically make it a guaranteed jackpot, you should read the whitepaper, search Bitcointalk for information regarding that coin and find the slack, telegram and discord channel invites.
Important information to consider:
• Does the coin or platform behind it have a real use case? What is the coins purpose
• What does the “coin” represent? Ownership? Currency? Is it a Token?
• Was there a premine? If so, why?
• Is the coin being actively developed? (Engage with the developers on slack and find out)
• Reasons behind the circulating and total supply (ask around on slack, reddit or bitcointalk)
• Who is behind the coin?
Tracking Prices/Profits
There are a number of apps you can use to watch the price of your favourite coins and also check how much profit you have made form your investments.
Here are my 3 favourites.
• Blockfolio
• Coinfolio
• CoinCap
You can also set up price alerts which send you push notifications whenever the price drops or rises above a certain level.
Scouting for new opportunities
Finally let’s look at how to scout for new investment opportunities.
Bitcointalk is an online forum where cryptocurrency investors can get together and discuss cryptocurrency, blockchain technology, new coins and ICO’s etc.
Developers also use the forum to announce the coins that they have been working on, if you do not know what new coins to look for simply type “ANN” in the forums search bar or paste this into your search browser: “site:bitcointalk.org ann”.
Bitcointalk is also a good source to find invite links to slack, telegram and discord channels which also provide a wealth of quality information and direct updates from the developers themselves.
Additional Advice:
Only invest what you can afford to lose
Invest according to your risk tolerance
Always do your own additional research
The best time to buy bitcoin was almost 10 years ago, the second best time is today
Use a hardware wallet like the Ledger Wallets to keep your cryptocurrencies safe if you own a large amount or plan to keep them for a long time.