Note: This is not financial advice. Do your own research! Hopefully, by reading this you can avoid some of the early mistakes I made, but make your own decisions (and good luck!).
For years I’ve known about Bitcoin and cryptocurrencies, and for years I sat on the sidelines watching the value of coins go higher and higher. This last month, I stopped coming up with excuses as to why I hadn’t bought any cryptocurrencies and I began trading with a very limited amount of knowledge and a few hundred dollars.
I had first decided to invest a few hundred dollars in Ripple (XRP) while it was trading at .20. While I was figuring out how to get the help of a friend to purchase Ripple (I waited several weeks), it climbed to .80. Finally, I got in, and had my shares of XRP. I saw the price go back and forth and worried that the price would fall back down to where it once was, leaving me with little money left to invest. I began to move my money to other coins. Again, the price rose. I exchanged more money out of Ripple and waited for the price to go back down. As I write this, XRP is now at $2.20 a coin, and as you can imagine, I did not triple my money by selling Ripple for other coins.
This was one of many lessons I learned my first month. Here are ten lessons I learned in my first month:
Set Your Goals Upfront
With anything you do in life, you should first set your goals, learn what’s needed to reach those goals, create a plan, and execute. In all the excitement of jumping into cryptocurrencies, I had no goal or plan, I just wanted to get in!
A friend, and much more experienced trader I know of, has very specific goals (earn enough to pay off a specific amount of debt) he’s trying to accomplish. Once they’re met, he will sell what’s in his portfolio, and be very happy with the results. This doesn’t mean he’ll never trade again, but by setting these specific goals, he eliminates all of the “what ifs” and a little bit of the uncertainty around what to do when in regards to buying and selling.
I now have goals, and although I’ll still make plenty of mistakes, these goals, and not fear or gut instincts, will guide my decisions.
Don’t Confuse Short-Term Gains with Long-Term Potential
We are in the wild wild west of cryptocurrencies. Coins that no one should believe in when it comes to their future potential and value are increasing 10x in a matter of days or weeks. It’s important to separate short-term gains from long-term potential. Just because a coin is going up 50% today doesn’t mean it will still be here a year from now (or even next month). Do your research before investing in a new coin.
When creating your goals and investing in cryptocurrencies, my advice to you is to think hard about the long-term potential of a coin instead of how well it has done in the past few days. If you don’t believe in a coin, don’t just invest in it because everyone else is. At the same time, if you believe in a coin, you may want to hold onto your investment instead of just trying to get rich in a day. After a couple of days, I sold my XRP to invest in an alternative coin that looked like it was taking off. Because of that, I missed out on 100% gains.
FOMO (Fear of Missing Out) Can Be Expensive
Let’s be honest, few of us would have ever invested in cryptocurrencies if it wasn’t for the success of Bitcoin. I was missing out on huge gains and kept reading story after story about people getting rich. I got my money ready and bought some Bitcoin! Woohooo, I was in. Bitcoin then dropped 30%. I lost money because I was afraid I would miss out on bigger gains.
I’m now tracking the movement of coins, researching them, and waiting for the right time to buy instead of just throwing my money into a cryptocurrency because I’m afraid it’s about to take off without me.
Patience is Key
Be patient! Bitcoin went from $900 to $20,000 quickly, but it was over the span of a year; it didn’t happen overnight. Thousands of investors bought at $900 or cheaper, and then sold when it doubled or tripled. Their impatience led to them missing out on huge gains, just like my impatience led me to miss out on huge gains in XRP. There is of course, a time and place for dumping a bad investment, but make that decision based on your goals and available information—not because you’re impatient.
You Can’t Buy Every Coin
There are over 1,300 cryptocurrencies and counting. No single person can properly track and monitor them all, nor should you try. Learn about and track a small number of coins (from my early experiences, I’d recommend 10-25 at the very most). By spending more time on a few, you can better recognize good entry points and stay on top of news that will impact their value. Some coins, like dogecoin, will be instantly recognizable as a coin not worth reading more about or investing in.
Gut-Feelings can be Misleading
I trust my gut. Usually, when I have a strong feeling about something (other than directions), I’m right. With cryptocurrencies, to say I’m an amateur is a massive understatement. Because I know very little about them, my gut-feelings are blind guesses. Do your research and don’t trust your gut until you feel comfortable with the cryptocurrencies you’re looking into. Even after trading stocks for over 10 years (off and on and at small levels) this market has taken my by surprise.
Keep Price Updates to a Minimum
Markets are never closed and the prices of coins are going up and down every second of every day. It’s very easy to get caught up in checking in on prices every few minutes, which can drain your time and energy, and take you away from what else is important in your life. Unless you’re ready to make trading your full-time job or have several free hours to spend each day, set limits to how often you check to see how much you’ve gained or loss. This is another reason why holding for the long-term is a good idea. You can take your mind off of the ups and downs since you know you’re not going to sell for a year (or whatever that timeframe is).
Don’t Blow Your Whole Budget Up Front
A couple of days after I spent all the money I was planning to invest on a single coin, it dropped, and dropped big. I quickly regretted investing everything I had with my first trade.
Make sure you’re watching the price movements of the coins you want to buy, and maintain some of your buying power in the case that it drops to an extremely attractive price. Don’t forget the basic principle of investing—buy low and sell high. If you truly believe in a coin, you will want to buy more when it drops (and it will at some point).
You Will Miss a 10x+ Opportunity, Deal With It
As discussed above, fear of missing out (FOMO) can be expensive. Early in your journey trading cryptocurrencies, you will miss out on a coin that goes up over 10x in a very short period of time. I already have. When this happens, accept it and move on. Don’t chase this gain and don’t let this get you too high or too low. There will always be another great opportunity to invest. Keep calm and keep learning.
Protect Your Investment. Protect Your Investment. PROTECT YOUR INVESTMENT.
I have yet to be hacked or scammed out of my very little bit of Bitcoin. However, I’ve heard many horror stories. Have you? Cryptocurrencies are a target of hackers and scammers. Protect your coins now so you don’t have horror stories to tell others. Whether you put your coins on hardware wallets or create paper wallets, protect your coins!
Bitcoin wallet guide: https://www.buybitcoinworldwide.com/wallets/
Thank you for reading! I’d love to connect with you further. If interested in winning some XRP (10 Ripple!), please enter my prediction contest here by 1/31/2018:
What lessons would you share with someone who is new to trading cryptocurrencies? Please share below!
Who is Michael Luchies?
Learn a bit about me here in my #introduceyourself post: https://steemit.com/introduceyourself/@michaelluchies/hello-stee-introduceyourself