This is going to be a very short post. I just want to discuss a simple concept that can greatly help your trading ventures. Cryptocurrency trading can be very rewarding, but also comes with lots of risks. We see Bitcoin and altcoins plummet in price all the time. Major volatility is just something we have to accept when trading these coins. What I’m going to show you is a way to eliminate the risk and potentially increase consistency in your gains.
Diversify your portfolio
A great trading strategy to eliminate risk and bring in steady gains is to divide your assets into multiple favorable coins. This acts as a way to “hedge” against other coins in case they drop in value.
It’s very simple. Just a find a few good coins to invest in(your preference in how many), and buy when you have a good opportunity. I recommend starting by only investing in 3 coins max. If you divide your money into too many coins, you are adding too many factors that could ultimately defeat the purpose of hedging and give you inconsistent and unpredictable returns.
There are a few factors I take into consideration when choosing my coins to invest in.
- Current market cap
- Check for active development team
- Check for near-future projects
- Social media
When I choose what coins I’ll be placing my money into, I check the factors listed above first. This is all beyond technical analysis and speculating from the charts. I’ll see whether the current market cap has room to potentially grow in the coming weeks. I will also go on twitter and find the coin’s page to see if things are being posted frequently, which is very important. It’s a major influence in chart movements. If bad news comes out, it’s way more likely that the price will drop.
Here’s a great site that contains links to social media, original announcement forums, and the current market cap of almost every coin existent today. https://coinmarketcap.com/
I hope you understood how dividing your assets into the right coins can create a hedging effect and give you more consistent returns. I do have one more tip that might help if you don’t do this already.
Be sure to set limit orders to capture profits and stop limits to reduce your losses when doing anything in your trading portfolio. It’s just a better, safer way of doing things and you will not regret it. An example would be to set limit orders 25% above where you bought in on these coins and manage daily in case you need to change your current setup.