What makes a good crypto investor? While some people are better at assassin digital assets, everyone makes mistakes, and it’s impossible to tell what will work with 100% certainty. There’s no straight answer to this question because it’s not just one thing. It’s a string of decisions and patterns that you make over time. With that in mind, here are the top ten decisions to make you a better crypto investor.
Diversify your portfolio
While crypto should be one of the assets you use to diversify your investments, to be extra sure, you shouldn’t put all your money in crypto either.
So, you want to pick several different currencies and split your assets among them. For instance, you should put some of your assets toward positional crypto (new crypto with large growth potential) and use the rest of your funds for day trading crypto. Because these tokens are often volatile, you can capitalize on this volatility quite a bit with the right trades and adequate strategy.
Also, it’s important to mention that many new cryptos operate on the same platform (like Ethereum). So, when diversifying your cryptocurrency investments, avoiding tokens with the same/similar background might be best.
Use a reliable exchange
Next, trading on reputable exchanges is definitely in your best interest, but picking the right one is harder. This is the so-called paradox of choice (when you have too many options to set your mind on just one). To escape the grip of this phenomenon, you want to approach this decision-making through several significant factors.
The first thing you want to do is check out the user interface. While this aspect is far from objective, this is the interface that you’ll look at for countless hours. Therefore, you must pick the right one.
Next, you should look at security measures and regulation compliances. Finally, you should look at the situation if you have any special requirements (like copy trading).
Learn about the underlying technology
You must always understand the nature of the asset you’re investing in. Buying crypto without understanding the underlying company would be like buying stocks without knowing what company it belongs to.
First, you want to learn about the blockchain. You need to examine the blockchain structure and the cryptographic principles behind the token. Again, you don’t have to understand it in-depth, but you should, at the very least, know what’s happening beneath the symbol and the abbreviation that you see on your screen.
A lot of these coins are either stablecoins or utility coins. This means that they’re either tied to a real-world asset or a real-world trend. Before purchasing, you should understand the connection and even delve deeper into the trend.
Learn how to set your trading budget
Regardless of position or day trading, you must know how much you can spare to invest. With day trading, there’s a huge risk of losing a huge part of your investment. You need to be ready for that. With position trading, things are even more complex. Even if you make it (eventually), your assets will be immobilized for a while.
The first step in assessing your trading budget is determining your current financial situation and investment objectives. In short, the process goes something like this:
- You assess your current financial situation.
- You figure out your risk tolerance
- You define your investment goals
The key thing to remember is that this isn’t a definitive solution. Your financial situation, risk tolerance, and goals will change over time. Reevaluate them occasionally since you can’t afford to become too complacent.
If you’re short on cash or need money urgently, you might not have the money to spare on these investments.
Track crypto-related news
There’s always something going on in the world of crypto. If you plan to invest your funds toward it, you need to know as soon as the next country bans/regulates crypto or when the next token (as with FTX) turns out to be a Ponzi Scheme.
However, you shouldn’t just track mainstream portals and consume this type of news. You also want to check out the public sentiment on forums, social media, and dedicated groups. While some of these will be just rumors, it wouldn’t be the first time that a scare or mass hysteria swayed the course of an entire market.
In other words, to make it as a crypto investor, you need to be well-informed. For this, you need to have credible sources of information. If you know how to position yourself, you can profit both in a bearish and in a bullish market.
Check out some of the best investors
People learn from mistakes; however, mistakes are expensive in trading. Experience is the best teacher, but no one says it has to be your experience. Instead, you should find some of the most successful investors available and study their behavior on the market.
This also unlocks the concept of copy-trading. This technique allows you to set up your trading platform to copy other (more seasoned traders). The benefits of this are many, and the fee a platform will charge for this feature is not too steep.
Another problem is that it robs you of agency and makes you feel too complacent. In other words, it’s best to use copy-trading early on as a learning method, not a permanent trading solution.
On the other hand, checking out top dogs in the industry is always a sound plan.
Avoid FOMO
During 2017, many people felt remorse for not buying Bitcoin in time. Then, in 2021, they realized they had missed another great opportunity (that they never thought they’d have). This has caused them to suffer from a phenomenon called FOMO (fear of missing out).
This is not just a fear of missing an opportunity but of being the only one missing out on an opportunity while everyone else gets insanely rich. The best way to avoid this is to be consistent in your trades and adopt a trading strategy. Having a strategy eliminates the illusion of having too many choices, which torments most people.
The truth is that some coins will have an explosion similar to Bitcoin in 2017 and 2021, but you have no way of knowing which. So, what are you missing out on?
Understand that positivity bias can be dangerous
Another psychological phenomenon you need to understand is positivity bias. Just because you want a nice thing to happen, just because you believe a nice thing should happen, doesn’t affect the outcome.
The majority of people place bets based on the innate human belief that everything will be alright. While nothing is more human than hope, the problem is that it could lead you to make lapses of judgment.
The survivorship bias further reinforces this. You believe this outcome is more likely since you mostly listen to stories of those who’ve made it (those who did not either stay silent or don’t make for great stories). Again, this won’t necessarily be the case.
Be skeptical about deals that sound too promising
If a deal sounds too good to be true, that’s probably because it is. Being skeptical is one tip that may keep you safe.
So, how do you recognize this?
Generally speaking, you need to be guided by common sense. If they:
- Give unrealistic promises
- Pressure you to decide quickly
- Hide information (presenting them as irrelevant or “too technical”)
Overall, it shouldn’t be too hard to tell.
Don’t get too emotional when trading
Finally, you shouldn’t let your emotions guide you. Sure, trusting your gut may work, but this won’t always be the case. To act like a trader and not a gambler, you must learn to make decisions based on data and data analysis. So, even if you have a great feeling about something, try to look for at least some data to support this sentiment.
To succeed big, you need to connect a string of small positive decisions
Success is a complex condition consisting of many smaller components. This means that, from the outside, success may seem like a result of a single good decision, but in reality, so many choices led to that exact outcome. So, instead of looking for hacks and shortcuts, learn how to become better at making these decisions.
