Investing in Cryptocurrency - A Novice’s Lessons

I’ve been interested in cryptocurrency and blockchain technology for a while now.  However, it’s not been until quite recently that I’ve started to pick up the tokens of the ‘interesting’ projects.  It feels like I’ve started to do this at the same time as the rest of the human race, but at least I registered on the exchanges of my choice before the verification lead-times stretched out to weeks.  Seriously, a friend of mine has been waiting for four weeks to get the most basic level of verification on Kraken.  Four weeks!  I was thinking of sending them an e-mail when it took 48 hours.

In the short time I’ve really taken an active interest in this space a few lessons have been learnt, some the easy way and some the hard way.  Now, let’s be clear, I’m not a complete novice when it comes to… well, let’s call it ‘investing’ for want of a better word.  I know that some folks out there do not like to call buying tokens investing but my brain won’t come up with a better description at the moment (let me know if you can think of one though).  Anyway, not a complete novice, I’ve bought stocks/shares in the past and even made a little money on that.

So, I thought I had a bit of a head start on the mass of humanity rushing towards this space with open arms.  However, I don’t think anything can quite prepare a person for the volatility of price changes, especially over the past couple of months.

Oh, and I also discovered Steemit!  How could I forget that, it should be the first thing I mentioned, right? :)  Anyway, in the short time I’ve been involved in this space a few lessons have become hardwired into my brain and I thought I’d share them as an initial post on this wonderful platform.  Of course, I also get to be immortalised in the blockchain.

Let’s be clear before I get any comments though.  I am not an expert and nor have I ever claimed to be one.  I probably never will claim to be one in any space either.  Claiming to be an expert is, I think, like painting a large target on your back.  I’m sure there are other lessons so feel free to share, it’s what this platform is all about after all.

1.  Have a plan:  Always, always have a plan.  Know when you’re happy to buy, what your target is, and be happy to sell and take profit if and when the opportunity arises.  

Now, don’t get me wrong, there are some projects out there (Ethereum, Zcash, etc) that are worth investing in and staying in because you believe in it.  You’ll benefit from it, as will others, and use it.  But there’s nothing wrong with taking profit out of something when the time is right.

I read something once about trading in the Forex markets.  It went something along these lines, although I can’t remember the author, “The easy thing to do in the Forex market is to make money.  The really difficult thing is to keep it”.  For anybody who’s bought in and felt the joy of watching the price rise and then the despair at watching it drop will, I’m sure, appreciate this.

2. Emotion:  We are all creatures of emotion (I don’t know if that’s a quote, but it sounds like it could be).  They rule us and determine so many of our actions, but I think emotion in trading of any kind is a dangerous thing.

Fear is a very dangerous emotion.  Specifically, the Fear Of Missing Out (FOMO to its friends).  Anyone who’s watched a price rise when you have no skin in the game can appreciate this.  Or anybody who’s seen the hype around the latest ICO, or who’s heard friends/colleagues talk up Factom (just a random example from my own experience) will understand too.

What I’ve learnt is to pay no heed to the emotion.  You miss out on something, hey, there will be something else tomorrow.  There’s always a new opportunity, perhaps one you can understand, be comfortable with, and maybe even get in on early.

Panic:  Oh, you evil witch you.  The feeling when you’re watching the price fall.  Should you hold or sell.  Should you cut your losses or hold and believe in the project and that, eventually, the price will rise again.  But if you sell… will it start to rise again..?

Take a breath, don’t panic and make rash decisions.  Personally, I look at my holdings once each day and decide what my comfortable position is.  Will I take some profit if the price rises, will I cut my losses if it drops to x?  When I’m comfortable, I place my orders (buys, stops, etc), walk away and come back tomorrow.

3.  Research:  Know what you’re buying.  Don’t buy because the price is high or because somebody else tells you it’s a good idea.  Understand the concept, understand the roadmaps, the development, where the project is going (it could all impact the future price).

Graphs, or what traders would call the ‘technical analysis’ are very handy too.  They can help to identify trends and momentum in the price movements and so give you a good idea of when to buy and, indeed, when to sell too.

Candlesticks, moving averages, and RSI are my current tools of choice, but there are many out there and you need to find what you’re comfortable with.  I highly recommend understanding technical analysis though.

4.  Stop!  Orders, that is, don’t stop reading.  I have vowed never to buy without an appropriate stop order in place again.  Stop orders, in their many forms, are great tools.  They can help you take profit, protect the profits you’ve already made (trailing stops are wonderful tools), and limit any losses (and you will take losses at some point).

That’s not to say they don’t come with their own risks in the current market though.  Just look at GDAX and the Ethereum crash from a few weeks ago (although I believe Coinbase are reimbursing folks for that).  Putting limits on your stops is an option too.

5.  Diversify:  Don’t pile everything into one buy order.  I know it’s tempting as you maximise any profits, but you also maximise your risks too.  Diversity is the key, spread you investment and you spread your risks.  You’re less vulnerable to adverse news having an Armageddon-like effect.

None of this is advice on how people should trade, invest, etc.  It’s simply meant to share some of the lessons I’ve learnt in the hope that it will help some folk take the easy rather than the hard road.

Feel free to add your lessons in the comments, we’re all here to learn.