I got to know blockchain technology at the beginning of 2016. That was also the time I bought my first cryptocurrencies. I watched tons of videos, read a lot of articles to learn about how blockchain and different consensus algorithms actually work, I read tons of whitepapers to explore different blockchain-based. This is my experience and all my lessons learned so far, hopefully you will take note from my mistakes!
In this article, I summarized 26 points or rules which helped me in making profits.
1. Know the asset you are investing in. If you decide to buy Bitcoin, read about Satoshi Nakamoto’s white paper first, learn how blockchain technology works, what is a public and a private key, what is proof of work, etc. If you are buying Ethereum, learn about smart contracts, how initial coin offerings and decentralized finance platforms work, etc. There are a lot of free resources on the internet with easy-to-understand explanations.
2. Know the crypto regulations in your country. What kind of cryptocurrencies are you allowed to buy and hold in your country? What kind of documents do you need to provide when buying crypto? How does the crypto tax regulation work? When you want to sell, always contact your crypto broker/exchange in advance to ask for the cash-out procedure, contact your bank in advance to ask what you need to provide in case you have a large amount of money flow into your account. Remember, always research these things in advance, even if you do not plan to sell immediately because it probably takes a very long time for those institutions to check and verify everything.
3. Do not invest more than you can afford to lose. Do not use your emergency money because crypto prices are very volatile and you might not get your money back when you need it urgently. Invest an amount that will not put you in a difficult situation if you lose it.
4. Never go all-in. After you have decided the total amount, you want to invest, for your first-time investment only spend part of it to buy whichever cryptocurrency you have researched and think is promising. Always have some cash at the side to buy the dip. This also reduces your risk of losing all the money when your expectation does not work out.
5. Keep your cryptos in your hardware wallet and keep your private keys and seed phrases safe. Never leave your crypto in exchanges, because they might get hacked or go bankrupt. In those cases, you will lose everything and never get it back.
6. Keep your private keys and seed phrased safe. Never save your private keys and seed phrases in your laptop or your smartphone, because they might get hacked as well. You can write them down on a piece of paper and put it in a place only you can find.
7. Do not day trade. Unless you are a very experienced trader, it is not a good idea to day trade, because you are trading against countless bots and whales who can influence the market. Chances are that you will lose a lot of money.
8. Do not leverage trade. Lots of platforms provide high leverage trading, which makes the gains look very attractive. But unless you have a lot of experience in leverage trading, chances are your position will get liquidated.
9. Accumulate knowledge about the crypto/blockchain space, such as new protocols, new developments, new projects, new regulations, general sentiments, price models, and so on. Blockchain and crypto are still at the early development stage. That is also why there are a lot of opportunities in this space. The market changes very fast, there are lots of news and developments every day. That is what makes the whole space exciting and interesting. Spend some time to read the news, you do not need to read every detail, but just the headlines and summaries are enough.
Here’s an article where I a list of 8 free Bitcoin indicators that I am using to analyse long-term trends:
10. Focus on the long term. Long-term means anything from a year to 5 years, or even more. Let’s look at Bitcoin which has the largest market cap at the moment. It just crashed more than 50% in the past week; tens of thousands of traders got their positions liquidated during a short period of time. However, if you zoom out to look at the long-term price development, you will see that anyone who held Bitcoin for more than 4 years is in profit.
11. Do not panic sell when the price is experiencing a fast drop unless you are already in significant profit and thinking about exiting. Normally whales use this strategy so that they can get cheap coins. Do not fall for that trick. Also, negative news affects the price of crypto, such as bankruptcy of exchange, some country bans the use and mine of crypto. In the past, prices tend to recover after some time.
12. Do not buy when the price just reaches an all-time high. Because all the people who bought at low price earlier are aiming to sell their coins at this level to take profit. Normally, after prices experience parabolic growth, either a huge downtrend will follow or a price correction will happen.
13. Do not buy when the price is in a downtrend. Because the price is likely to get lower and lower. It is better to wait until the price has stabilized, then place a buy order.
14. Do not give up when the price reaches the bottom, it is normally when the accumulation starts.
15. Accumulate periodically to average your cost. The price of most cryptos out there follows the price of Bitcoin. Nobody knows whether the price of Bitcoin will increase or decrease tomorrow. A lazy strategy would be spending a small proportion of your monthly salary to accumulate on a specific day every month.
16. Set a realistic profit target and exit strategy. Remember that you are not there to maximize profit, but to increase your fiat buying power. It is impossible to buy exactly at the bottom and sell at the very top, all we do is to buy low sell high, to make a profit during the uptrend development. Here are two good videos from DataDash and Ivan on Tech about exit strategy I would recommend.
17. Take initial investment out once you are in profit. This way, you get your money back, even if you lose, you are only losing the profit you have made.
18. Know the risk-reward ratio. A coin is more likely to go from $1 to $2 than from $1000 to $2000, even though the increase is 100%. If your profit goals have been reached, there is no point to wait for some coin to go from 3k to 6k, while it could actually reach 6k, you are also taking a risk of losing your profit because the market is unpredictable.
Addendum 24.09.2021: Thanks for all your feedback. I realized that this point needs some more clarification. As some people pointed out this indeed has more to do with market cap rather than price. If a crypto currency has a total market cap of say $100 million it’s potential to double and reach $200 million are much higher than for a currency that has a market cap of $500 million.
However, if you are new to crypto I would recommend you to start with the established coins and projects such as Bitcoin and Ethereum. Only after you gained some experience you should focus on other, smaller coins.
19. Diversify. Do not put all your eggs in one basket. In order to reduce risks, focus on large-cap cryptos which actually have real use cases. It also does not hurt to diversify into other assets, such as stocks and gold.
20. Do not follow random social media account recommendations and buy a token or coin you don’t know. A lot of people post on social media saying “X token will moon by the end of this month” or “Y coin is the next unicorn”. Do not follow any of these advices until you have done your own thorough research.
21. Do not follow everything said by big influencers. Many of them want to get clicks and views and increase their followers. As a result, they always tell what people want to hear. For example, after a huge price drop of Bitcoin, some of them say “Bitcoin will moon tomorrow”, just because a lot of people whose portfolios are in the red want to hear it.
22. Read/listen to opinions from different sources, both positive/ bullish and negative/ bearish. Nobody knows everything. That is why it is important to listen to different sources. If you have followed №1 and №9, then you already have enough knowledge to make your own judgment. And if you have been in the space long enough, you will be able to distinguish between reliable and unreliable sources.
23. Do not follow pump-and-dump groups. They are very risky. Normally when the price reaches a certain level, a whale will dump, and the price will experience a very fast drop. Chances are that the price will never recover and you will lose money.
24. Do not fall for scams. Such as free giveaways which require you to send your crypto to another address, comments on Twitter and YouTube where people say they made $$$ with some person, impersonators of big influencers. Here’s a story I wrote about how my friend Steve lost $20,000 to a cryptocurrency scam and what you can learn from it:
25. Control your emotions, do not be jealous of others when they made a lot of money. Feel happy for them and learn from other people’s experiences. Do not get frustrated if you lose money. Learn from your mistakes. It is a long-term learning process. I also lost money before after I started to buy Cryptos.
26. Patience is the key. If you are about to lose your patience, refer back to rule №10, zoom out Bitcoin price chart and look at the long-term trend.
Stefan Bolzan – Hustle Hard