How To Build Altcoin Positions & Mitigate Risk
No Escaping It!
Risk is an inherent facet of investing. Whether it’s stocks, Crypto, or even property. Risk is an integral aspect of the process that simply cannot be eradicated. However, what we can do as investors is to learn and apply sound practices that are at least able to mitigate these risks. For those new to the world of investing, this practice is known as risk management and can greatly enhance the probability of success.
This is a strategy to be practiced once a bottom formation is in place. The accumulation of larger cap altcoins, as well as Bitcoin can be initiated a little earlier. However, in terms of smaller cap projects, a bottom formation is important. Your initial position is also critical, as it sets the tone for additional allocation. I advocate a reasonable size, yet simultaneously, not enough to hurt, were the project not to perform.
In other words, if the initial investment managed a 20X or 30X, would it be substantial? A lot of traders choose to throw money at something every time it drops. This is a bad idea. Buying the dip is for already established projects like Bitcoin, ETH, and others. The primary objective is to protect your entry. Every decision that follows the initial allocation is executed with this in mind. If the “entry” is protected, the investment remains in profit. Let’s take a look at an example.
The arrow on the far left points to my initial entry point. I did not add to this position while it was ranging but only chose to add once the position was in profit. I waited for a correction significantly higher than my entry price. My additional entries have been highlighted in green, while the red arrow points to a prime opportunity that I missed out on. It’s important to note that in terms of dollar valuation, these allocations are only a fraction of my initial position. Why? Because if I add an equal amount, I am no longer protecting my entry.
If I were to add an amount at the $0.005 mark equal to my first allocation at $0.001, my entry price would now jump to $0.0025. By adding smaller allocations as the price rises, my entry is protected. To be clear, I am only adding during a correction from a higher high. To continue with this process works to secure your entry, ultimately maintaining the profitability of your investment or trade.
This particular example had an extreme run-up. The price action above all took place in a week or two, which is why it looks like there were perhaps missed opportunities. However, when a project does 900% in a matter of days, it’s rather difficult to catch all the opportune moments. Some may wonder why I would want to add so much higher. Simply because this entire formation is unfolding on the 2-hour timeframe.
The bull market has not even begun, in terms of price appreciation. The market cap of this particular asset also happens to be extremely low. A mere $30 million at the commencement of a new bullish cycle implies enormous growth potential over the next two years or so.
Further Enhancement
Another way to increase your holdings is to actively trade a small portion. I like to take custody of at least 80% of my coins, and then actively trade the remainder, to grow my stack while simultaneously building positions. For instance, the abovementioned chart is showing signs of topping out. I can actively trade a correction by selling the top and buying lower. Considering that the majority of my position was acquired much lower, I am reasonably safe from experiencing any loss.
Effective execution of this strategy can cause your stack to increase significantly. Firstly, your initial entry is much lower, and secondly, additional coins are being acquired without further capital allocation. Provided you are a reasonably good trader, you are likely to experience significant success, especially over 2 years. I hope this has encouraged some creativity and strategic planning.
These are my strategies and interpretations of the market and not financial advice. Conduct your own due diligence and ensure you are well acquainted with the risks involved, especially with micro-cap projects. All the best, catch you in the next one!
Disclaimer
First of all, I am not a financial advisor. All information provided on this website is strictly my own opinion and not financial advice. I do make use of affiliate links. Purchasing or interacting with any third-party company could result in me receiving a commission. In some instances, utilizing an affiliate link can also result in a bonus or discount.
This article was first published on Sapphire Crypto.