Few enterprise activities are currently as competitive as cryptocurrency trading. It is vibrant, dynamic and holds the promise of great fortune for the astute trader. Therefore, many people want to get into this industry and begin trading for the purpose of creating wealth. Among the very first questions that they ask themselves before taking the plunge is, how do I start? Well, find the answer here!
Identify the specific type of cryptocurrency which you want to be involved in
Cryptocurrencies hold value. Therefore, they are digital assets. Since the cryptocurrency market is quite young, the prices of digital currencies are prone to fluctuation. Hence, you need to exercise caution from the very first moment that you begin trading. Start by picking the cryptocurrency that you want to invest in.
Begin by performing a fundamental analysis of the specific cryptocurrency which you want to invest in. This analysis involves understanding the following characteristics:
- The history of the cryptocurrency
- Its Initial Coin Offering (ICO)
- Its potential
- Its fundamental technology
- The cryptocurrency’s market capitalization
- The problems it solves or opportunities it offers
By finding out all these elements of a cryptocurrency, you’re able to have a firm understanding of what you’re getting involved in.
Pick an investment strategy
Investment Strategy
There are many types of investment strategies which you can pick. Examples of these are short term, medium and long term investment. By identifying the type of strategy which you intend to use, you’re able to determine these core elements of your investment:
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Your capital
The amount of capital which you invest depends on your strategy. A short term trading strategy requires the most amount of money. It can double or triple your investment with a quick turnaround. However, this type of strategy carries the highest level of risk.
A medium-term investment strategy requires moderate amount of capital. It also has a medium level of risk.
If you want to invest using a long term strategy, it requires the lowest amount of capital. This is because you have a long time to grow the value of your portfolio. Moreover, the risk is spread over many years. Hence, it is marginally lower.
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Knowledge base
For you to trade profitably, it is important to gather information and understand the cryptocurrency market. You need to have a firm grasp of market trends, trading culture and investor mentality.
Traders perform technical and fundamental analyses. Moreover, a study of market indicators, market-moving events, developer announcements and technology news is necessary.
The type of investment strategy which you pick determines the type of information which you need to seek. If you want to trade on the short term, an understanding of the technical analysis and market-moving events is enough.
If you want to invest on the medium term, it is important to understand market trends and developer projections. You also need to stay updated on technology news. This will give you a clear picture of the general direction of a cryptocurrency.
When investing in the long term, you need to understand quite a lot about a wide variety of details. You need to comprehend market trends, trading culture, mentality about the cryptocurrency and the developer projections as well. You also need to perform both technical and fundamental analyses as well as stay updated on the news. As such, your trading strategy goes a long way in determining the required knowledge-base.
Find out the trustworthiness of your cryptocurrency of choice
There are hundreds of cryptocurrencies today. A large chunk of them will not be profitable in the next decade. However, many of them will. How can you tell which one is worth your money?
Peter Thiel
According to Peter Thiel, every profitable and trustworthy cryptocurrency has 3 main characteristics:
- It presents a unique idea which provides real solutions
- It improves gradually due to the input of a competent development team
- It can coordinate complex ideas effortlessly
As you enter the cryptocurrency trading industry, strive to pick out your investments after considering the characteristics above.
Invest what you are willing to lose
When approaching cryptocurrencies, the first rule is to invest only what you are willing to lose. If you aren’t willing to lose your investment, you have too much on the line. On the other hand, if losing your investment barely hurts you financially, you are investing too little.
A good rule of thumb is to have 95% of your investments held in a diversified portfolio containing instruments from various classes of assets, sectors and geographical locations. In this way, your risk is spread out and risk can be mitigated effectively. Investing 5% of your capital in cryptocurrencies is a good place to start.
There’s no denying that cryptocurrencies are the future of money today. They have evolved from digital curiosities to holding billions in value. By following the guidelines above, you can begin investing in cryptocurrencies and create a profitable portfolio.