As the year 2021 comes to an end, Bitcoin and many altcoins are reaching new heights. The overall value of the crypto market has more than quadrupled this year, according to industry data.
In this type of market, trading can seem simple, as anyone who invests with proper planning can get profit. But how do you maximize gains and minimize risk when trading altcoins? And how do you ensure you’re not left holding the bag when a bear market begins?
In the first article of this series, we discussed finding an exchange, choosing coins, and relying on logic (and not emotions). In the second article, we covered goal-setting, market timing, and risk management. If you missed those Zenfuse trading guides, click the link below to read them:
In part 3, we’ll cover some more strategies to trade altcoins successfully. Read on, and get ready to crush the crypto markets.
1. Diversify your Portfolio
Perhaps you’ve heard the famous investment saying, “Don’t put all your eggs in one basket.” What that means is if you put all your money in shares of a single company, you expose yourself to the success (or failure) of that company. If they perform poorly and go bankrupt, your money will disappear. You can reduce this risk by dividing your capital among different stocks, commodities, real estate, etc.
In crypto, this means distributing your investment among different coins. That distribution doesn’t mean you just buy random coins. Instead, choose them wisely as discussed in Part I of this series. Bitcoin and ethereum should form a large portion of your investment, functioning as your long-term holds. These two are the largest coins and most experts believe they’ll increase in value over the long term. Plus, they’re highly liquid and can be converted to fiat easily. You can put the rest into altcoins you feel have good value and will yield you solid returns.
The exact percentage allocation depends on your preferences and risk appetite. The famous investor Mark Cuban, for instance, has a portfolio of 60% bitcoin, 30% ethereum, and 10% altcoins. If you see great potential in several projects, and you have time to watch the projects grow, you can allocate more capital to altcoins. For example, you could use the following formula:
- 30% Bitcoin
- 20% Ethereum
- 50% altcoins (5–10 projects you like)
So, you hold 50% of your portfolio in bitcoin and ethereum. Then, you trade altcoins with the other 50%. This way, if one altcoin project fails, your portfolio won’t get rekt.
2. Give yourself some time
The ‘wen moon?’ mindset is prevalent in crypto, especially during bull markets (as noted by this Coin Telegraph article). Trading altcoins with that mindset can potentially lead to poor decisions — ones that aren’t based on data and logic.
In crypto trading, patience and dedication are very important. One must understand the ebbs and flows of the market, and that good projects will last and win at the end of the day. During the entire period of your investment, you will be tried. There will be both sad and happy days while you trade, but you must understand how to use ‘time’ to your advantage.
For instance, if you anticipated a run up for a certain coin, but it falls due to unexpected news, don’t panic sell. If it’s a good coin, it will rise again in value. As investment fund managers have stated, “time, not timing, is what matters” and you must harness the “power of staying invested.”
In other words, hodl, hodl, hodl!
To summarize, don’t expect that a coin you bought today will be pumped tomorrow. Give yourself time to investigate and plan. Remember today’s $60K USD bitcoin was once worth zero dollars and during its decade-old history, it’s crashed more than 50% seven times.
3. Avoid scams
The crypto industry is not regulated and is open for anyone to come and launch their project. Unfortunately, this openness feature of blockchain technology is abused by many scammers. To date, there are many scam projects that have ripped off investors of their hard-earned money.
A recent scam was the Squid Game coin, which cleaned investors out of $3.3 million in funds. The coin’s anonymous creators (scammers) capitalized on the popularity of the Netflix show, tricking investors with one of the bigger rug pulls of the year.
The lesson here is to exercise caution. Scams will always be around, but you can minimize your risk and avoid such projects by looking for red flags. First, do your own research (DYOR). Read project whitepapers, talk with the community in Telegram, research the team, and look over the token contract. That will give you a good idea if the project is legit.
Finally, as many have said, if it looks too good to be true, be very careful. A legitimate platform that is not a scam will not guarantee a huge return of investment within a short period..
4. Acquire trading knowledge
This is one of the most overlooked aspects of trading. Many ignore the fact that trading requires technical skills. The ability to read charts, perform market research, and identify patterns is crucial to success.
Note: We have an upcoming series on trading indicators. Stay tuned!
Super emphasis should be placed on this aspect of trading for success. New traders should understand that trading is not as easy as it looks. The best traders today have spent countless hours studying, testing, and developing their strategies in order to maximize profit potential while minimizing risk.
There are lots of educational platforms that can help. At Zenfuse, we’ve built a platform that aims to make this part easier for you. We offer built-in trading tools, analytics, news feeds updates and more. This way, you can learn how to leverage trading indicators to your advantage, and start crushing the crypto markets sooner, rather than later.
About Zenfuse
Zenfuse is a powerful all-in-one platform for cryptocurrency traders and investors.
It aggregates multiple cryptocurrency exchanges, allowing control of funds via API, and powers up the trading process, making trading more profitable, simple, and stress-free.
Our cross-platform app provides rich analytics of both your portfolio and order history, giving you the ability to control your funds on a mobile device.
