Cryptocurrency Investing Tips

Simple Tips that Will Help You Trade Bitcoin (and Other CryptoCurrencies) Without Making Rookie Mistakes

Here are some basic tips and tricks for investing in and trading Bitcoin (and other cryptos). We cover how to avoid fees, what orders to use, and more.

TIP: The tips and tricks below shouldn’t be mistaken as professional investing advice, instead this is basic friendly advice to mull over. If you want professional investment advice, consult a fiduciary.!

To keep it simple, let’s jump right in to some Bitcoin investing and trading tips and tricks:

Use an exchange, not a broker.
You’ll save money on fees. For example, buy and sell with GDAX and not Coinbase.
When you buy/sell via an exchange, try to use limit orders (try not to use market orders). Limit orders generally have the lowest fees, market orders generally have higher fees. On GDAX, limit orders are free as long as they don’t fill immediately (meanwhile, market orders result in a .3% fee, that is better than the 1.4% Coinbase charges, but not as good as 0%… especially if you are day trading).

Figure out if you want to go long or short.
Are you going short with every penny you have to invest, or are you going to go long with some and short with some? Long term investors will pay a lower tax rate if they can hold for over 12 months, but as a trade-off they WILL have to sit through corrections (likely seeing their balance go down 50% plus on paper as often as they see it go up). Short term investors can avoid corrections if they are nimble, but they’ll owe taxes on the profits from each trade they do along the way (see: how taxes work with cryptocurrency to understand how the long term and short term capital gains tax work with cryptocurrency).
If you are going long, consider dollar cost averaging. No better way to avoid making a poorly timed trade than to dollar cost average (buying incrementally instead of all at once and thereby buying an asset at its “average” price over time).

Consider laddering your buys and sells.

In others words, instead of buying or selling everything in one chunk, set incremental buy and sell orders to buy when the price goes down and sell when the price goes up.

Remember Cryptocurrency is a 24/7 Global Market.

In other words, the market never sleeps. Since you do, consider automating your investing strategy using limit orders, stops, or even APIS (AKA “trading bots”).
Dad advice: Aim to buy low, sell high… try not to buy high, sell low. Look at the price trend, if you are at the highest point it has been in the past 24 hours or so, that is inherently more risky. It can make sense to buy as the price starts to break out, but buying after a breakout at a new high while filled with excitement is a little “irrationally exuberant.” This is to say “buy the dips” and “the best time to buy is when there’s blood in the streets… even if it is your own.” Conversely, the worst time to buy is generally right after the price has shot up and everyone is overly manic. If you do buy high, consider HODLing (to “HODL” is to Hold On for Dear Life as the price goes down; it is what you do when you buy high and then neglect to set a stop… or if you are going long and can’t or don’t want to cash out yet).
You cannot “buy the dips” if you have all your money to invest already invested. That should be obvious, but consider always having some funds to the side to buy an unforeseen downturn. Even if you want to “go all in” on crypto… leave yourself at least a little money to the side just in case. If you are all in and the price takes a hard downturn, it takes lots of options off the table.

BTC is King/Queen; Don’t Get Overly Optimistic About Altcoins. Those who invest in BTC tend to get itchy fingers when BTC stagnates and alts go up. Sure, going into IOTA or ZCash can be a brilliant move at times… at other times you’ll be holding the bag while everyone moves back into BTC. Stick with coins you know and like, but consider always being partly in BTC (not 24/7, but in general).

Altcoins and Bitcoin often do the opposite of each other (but not always). In other words, it is not rare to see Bitcoin go down while alts go up (and vice versa). This is because everyone who has alts has Bitcoin, so they tend to move out of Bitcoin when it goes down and move into alts. With that said, every once in a while this isn’t true and all coins go up or down together (generally following Bitcoin’s lead). Learn more about the relationship between Bitcoin and Alts.

Consider Diversifying. With that above advice in mind, there is nothing worse than getting frustrated with BTC, moving to ETH and missing a price spike, then moving back into BTC and missing the ETH spike. If you have some of your funds in all the coins you trade, you’ll avoid missing out on a unicorn (a term one can use to describe an odd event, like a giant price spike in a short amount of time).

Learn Technical Analysis. Technical Analysis (TA) is the analyzing of price and volume data and trying to predict future trends based on that. If you know how to read a chart, you’ll be better able to understand how things like candles, moving averages, RSI, and the order book can clue you in to good spots to buy and sell. TIP: You don’t have to be good at this, you can just follow others who are.

Watch the Order Book. The order book (found on all exchanges) can give you a good sense of what buy/sell orders are on the books. If you see a lot of sell orders at a certain price and want to sell, you may aim to sell under that price. Likewise, if you are waiting for the price to drop to buy, look at the distribution of other people’s buy orders.

Hold some coins, range trade some coins, keep money on hand for a dip, and set some high-ball and low-ball orders. If you want to ensure you are happy no matter which direction the winds blow, then be set-up to benefit from whatever comes next. If you have some coins you hold, some coins you trade daily or weekly, some money set aside for a dip, and some high-ball and low-ball orders set… then you stand to benefit regardless of what happens. It can be tempting to cash out of crypto or go all in, but both of those can be disappointing if the market goes in the opposite direction you were hoping for.

Use small buy-ins, and don’t margin trade or short unless you really know your stuff. The smaller your bet is compared to your total investable funds, the less risk you are taking on every bet. Putting it all on black is tempting, but then if it comes up red you have nothing left to invest. Live to fight another day by learning to manage your buy-in size. As a rule of thumb invest 1% or less per buy in (yes, that small, really; losing 100% of 1% leaves you with 99%, losing 1% of 100% leaves you with 99%… small bids offer the same bet, but with way less risk). Put reward aside and practice risk management and capital preservation (and thus, by logical extension: don’t margin trade or short unless you really know what you are doing). See: Kelly criterion.

React to the Mood of the Market, But Otherwise Pick a Strategy and Stick With It. The market changes moods and some strategies are better than others in a given market. So you’ll likely want to evolve your strategy as the market changes and you learn. However, you’ll likely want to avoid things like going long for most of the year, but then 9 months into your investment you start day trading when the market is down. Sometimes it can be tempting to change one’s strategy to adjust to the current market (for example if the market is bearish and trading in a tight range), however this can get you in real trouble. A long investor who starts going short will start realizing capital gains and will risk being in fiat if and when there is a recovery (recoveries, like corrections, can come on very quick and without warning).

Realize that a diverse portfolio and investing strategy will eat into gains as often as it staves off losses. The only way to make big profits most of the time is to make risky moves. If you go all in on a single coin at a given price and it goes up, that is a payday. If it goes down, your investable funds are locked into that crypto (unless you want to sell at a loss). Diverse strategies protect against this, but they will also eat into your potential gains (as it is rare for everything to go up or down at once). Know what you are looking for and know how to weight your portfolio to reflect that.

Don’t get itchy fingers. If you have a strategy, stick with it. Sometimes the market will go nuts. Selling or buying at that time may make sense, but don’t get nervous and switch up your whole strategy without thinking about it. That is often when bad moves are made. If you are going to buy heavy or sell heavy on a whim, consider taking a step back first.

Watch out for scams. There are a few different scams in the crypto world. Anything that isn’t buying a coin with a good reputation is a big risk. Learn more about scams.

Lots of traders use bots. To the next point, lots of traders use trading bots. Some are white hat, some will try to get you to make bad trades. Keep an eye out for bots. If using a bot, be careful, there are bots designed to take poorly programed bots out.

Watch out for Spoofers and market manipulation. Welcome to the wild west, the sherif is out-of-town, enter the saloon at your own risk. Spoofing caused the flash crash of 2010 in the regulated stock market, that happens times 10 in crypto. A too-good-to-be-true price spike or dip is often the work of market manipulators. Know what to avoid by reading our article on cryptocurrency and spoofing.

Dad Advice: Don’t invest more than you can afford to lose. No really, there will be many great investments in your lifetime, there has been in Bitcoins lifetime. Bitcoin doesn’t cost $225 anymore. The chances that you’ll never have to work again if you invest you lifesavings in Bitcoin aren’t non-existent… but they aren’t as good as they used to be. If Bitcoin ends up down, you’ll be hodling the bag while others are on to better and brighter pastures.

Take profits. Some investors think “taking profits” is a dirty phrase, but it is a rather conservative strategy none-the-less. Taking profits can result in you making less money than you would have if you did nothing and just “let it ride”… but that is only true if Bitcoin goes up over the long term. If you have hefty profits, consider taking them off the table, and then waiting for a lower price in the future. Worst case, you can buy back in at a higher price later (leaving some potential profits on the table). TIP: If a coin just went up 400%… consider taking some profits. Cryptocurrency almost always corrects at some point after a big run.

Expect Price Spikes, Expect Corrections, Be Patient, and Stick to a Strategy: Cryptocurrency tends to make big moves in terms of price and volume. It is easy to get FOMO (fear of missing out) and buy high, and it is easy to get overwhelmed by FUD (fear, uncertainty, and doubt) and sell. If you miss a price jump, it isn’t necessarily time to go all-in in an emotionally charged panic. Instead wait patiently for the price to settle (which could take weeks or months) or average in or out slowly. Taking gains after the price goes way up, or making a buy after the price goes way down makes sense. Panic buying after the price just went way up, or panic selling after it went way down is rarely the right move.

Set limit orders for a few dollars under or over recent lows and highs. This can result in you buying or selling before BTC hits resistance.

Bitcoin tends to find resistance at whole numbers. For example, at $4.8k and $4.85k.
Consider setting stop orders after you buy. A stop order will create a market order when a price is hit. This means stop orders are subject to slippage and fees, but this also means you can calculate your risk. One should generally set stops when not at a computer to protect their investment.
Watch the news. Did Russia and China just come out against exchanges? Is Bitcoin about to fork?
When Bitcoin forks into a new cryptocurrency… everyone gets free coins. When Bitcoin Cash was created, everyone holding BTC got 1 Cash for every BTC they had. Next time Bitcoin forks this will be true again. NOTE: Forks can be confusing, if you aren’t in the fork for the capture date (which isn’t always clear) you don’t get the free coins. DO NOT

CHASE FREE COINS (see next point).
Forks aren’t worth losing money. 1 Bitcoin Cash is worth about $330 as of today in Oct 2017. 1 Bitcoin costs about $4.8k. If it cost you hundreds in losses to get a single Bitcoin Cash… it arguably wasn’t worth it. In other words, don’t let excitement or fear of a fork mess with your general strategy too much.
Join some social media groups that discuss Crypto, but take what they say with a grain of salt. It is good to get a sense of what is going on.
Realize that Bitcoin could get supplanted by another altcoin over time. For now Bitcoin is king/queen, this won’t necessarily be true in the future. Yahoo used to be the search giant, now it is Google. You can be right about crypto, but wrong about coin choice.
If you are a big player, keep in mind you can distort the price. Volume is decent on any given crypto exchange, but this isn’t like trading the S&P. If you are playing with 50BTC, and you try to buy or sell that much at once, you can distort the market. When you watch buy/sell orders in an exchange, you’ll notice that when sells ball up the price tends to drop and when buys ball up the price tends to go up. If you try to buy or sell too hard, you can drag the price up or down a little. If you have insanely deep pockets you can accidentally be dipping your toes in at-best-grey-area behavior. It is much better etiquette to buy and sell in amounts that are average for the book you are buying on. When a high level investor buys ten billion worth of a stock, or sells, they do it in chunks (to avoid dropping or spiking the price of the asset). TIP: Also watch out for shady people pumping or dumping a coin by doing this. What looks like a lot of buyers could be one person or a group messing with the price. The lack of regulation is a blessing and a curse with crypto, as is the relatively low volume compared to other asset types.
Learn the lingo. BTC is the symbol for Bitcoin. Bitcoin is a type of cryptocurrency. An altcoin is a coin that isn’t Bitcoin (like Ether). Limits, stops, exchanges, shorting, forks, ICOs, margin trading, etc (search for any of those on our site). It is way easier to invest and trade if you understand the common terms used. It is also easier to make friends in crypto groups if you know investing lingo and basic memes like “hodl.”
Know when to take a loss. Nothing is less fun than taking a loss, but if you are going short in BTC and you haven’t set a stop, sometimes it makes more sense to take a loss and wait for a better price than it does to suddenly start going long.
Know what you are investing in, and know the risk. Bitcoin is speculative and volatile. Buying near $5k means buying near the highest price Bitcoin has ever been. Some think Bitcoin is going to $10k, some think it is going to $10. It is easy to get euphoric and think whatever today’s price is is a safe bet. Historically that has been true or not depending on the weather in a given day.
Realize that Bitcoin isn’t the same as Blockchain. Blockchain technology is something many are bullish on, but that sentiment shouldn’t be confused as being sentiment about Bitcoin specifically.
Fiat Currency is still a thing; BTC isn’t legal tender; we don’t live in a Libertarian utopia; Governments and Banks aren’t as into Bitcoin as you. If you get caught up in the Bitcoin craze it can easy to forget that the world’s governments aren’t super stoked on Bitcoin. Libertarians, Tech Geeks, Gangsters, these people are bullish on Bitcoin; world governments and banks, not so much. Last I checked, world governments had a little more power. Betting against them is a risky bet.
Know thy taxes. Speaking of legal tender like the USD, it is what you use to pay taxes. If you don’t understand Bitcoin’s tax implications, brush up on them before you start power trading. One could get them into a situation where they make money on paper, but end the year down in Bitcoin without taking their loss… thus end up owing a bunch of money they don’t have in taxes. Those who don’t have investment experince can really get in trouble if they don’t understand the somewhat complex implications of trading crypto.
Watch out for odd Altcoins and ICOs. The above advice is all about BTC, but it is generally true for altcoins too. The thing is, altcoins tend to follow BTC on a good day, and get drained while everyone rushes to BTC on a bad day. ICOs meanwhile are new altcoins. There is gold in them thar hills, but it is harder to get than the gold coming out of BTC. Invest in Alts and ICOs with caution. Some will be very successful, but you have to watch out for shh-coins and scams. It can be a bad strategy to ignore the top cryptos and bottom fish only.

In other words, buy low and sell high via an exchange using limit orders, dollar cost average, set stops if you aren’t in front of a computer, ladder buy/sell orders, know the tax implications, and generally consider being conservative and not spending your life savings on digital assets.