The recent BTC rally made the crypto market hot again. This means that mistakes are easy to make. There is a reason why buying the top and selling the dip is a meme. When the gains are big enough, even the most hardcore hodlers start to feel the pressure. Is it a pump and dump or a ticket to financial freedom? Figuring this stuff out is very hard, I would even say it is almost impossible to hit the golden ticket. But there are some things that us “mortal people” can do to protect ourselves. One of these things is to recognize what we can do wrong. And in this article, we will take a look at some mistakes that I am pretty certain everybody has done already, especially in the crypto markets.
Trading Strategy
The first thing I want to mention is a pretty obvious one. But when I started putting my money into things, I did this mistake. You should never start investing or trading without an actual plan. Before you deposit even a single penny into a cryptocurrency you have to ask yourself if you are playing the long game or just gambling short term. For me long term means that we are hodling the coin for months or even years. This means that you believe in the project and will hold it even though it dropped by 90%. On the other hand, short term means that we are just holding the asset for days or weeks and hoping to sell the investment with a good amount of profit.
If you decide to take the long-term path, the best way to maximize your gains is the DCA-method (Dollar Cost Average). That means that you should buy the asset in periodic intervals, no matter what the price is. Multiple studies have compared the DCA method with people who waited to buy the dip. The result was that DCA is more profitable in almost every case than waiting and buying the dip. This is of course due to the reason that we can not look into the future and possibly know where the dip would be.
If you want to play the short term, be prepared for some sleepless nights because the crypto market never sleeps, and neither will you. I also experienced this path, and I wouldn’t do that again. In my opinion the long-term solution is much more beneficial towards your life balance and will make you happier over the long run. Of course, you could miss out on some 10x gains but at the moment they are very hard to find. But if you know an easy and stressless way on finding them, let me know :P.
Exit Strategy
This brings me to the next mistake I did early on: It is not having an Exit strategy. One of the meanings of this is that this is the point where you convert your crypto gains into fiat money. For other people that are more crypto lovers it is converting your crypto gains from your Altcoins into Bitcoin. For me it is very obvious that I want to convert my gains into BTC purely because of the trading strategy I mentioned before. For me BTC is just at the beginning, and it might be one of the most valuable assets in the future. That is why most of the crypto gains I make are going into Bitcoin. On the other hand, it is not a crime to admit that currently the world runs with fiat money and BTC will most likely not bring any food to the table (except you are living in El Savador). This means that there is also no shame to convert your gains into fiat money.
With this being said, there are two strategies on how to do that. All it once or small parts over time. The advantage of the first one is that it will make your tax return information much easier to manage and you don’t have to care about what to do next. You can lay back and plan your next master plan for the next gains to make. The disadvantage of course is that there is no way of knowing where the top is, so you could be at risk of missing out on some more gains. This could lead to FOMO and trust me this happened to me more often than I would have wished for. The second way that I mentioned is to take profits at fixed intervals. It is like the reverse DCA method but now you are selling your gains. This requires a little bit more work from your side but is probably a better way of keeping you away from the FOMO.
Regardless of which strategy you choose it is important to stick to it. This also happened to me. I had a well thought trough exit strategy. Mid way trough I changed my strategy, and this bit me in my butt later on. Not only do you have the stress of quickly coming up with a new strategy, but you are also more likely to do a silly mistake that would cost you your well-deserved gains.
Indicator Metrics
The last thing I want to mention are some indicators that people should pay attention to if they are buying into a crypto currency. One of these things is the order book depth. This is a representation of the buy and sell orders for this crypto pair on that exchange. I learned that when the sell wave is larger than the buy wave, it means that there is not much demand for this asset. The steps that can be often seen in these charts are called sell walls. These walls mark a price where a lot of people will be selling. The higher the wall the harder it will be to push past this point. The previous points are also valid for the buy wave, just reversely.
Some other macro metrics like trading volume and circulating supply are also very important to look at. Here, we are talking about the trading volume that you would see on sites like CoinmarketCap. These gives you a good overview over the trading volume across all exchanges. A good cryptocurrency should have an ample trading volume relative to its market cap and ideally that trading volume should be high on more than one exchange. This means that if you find a token that is traded on just one DEX, give it a little bit more time and research it properly before investing into it. It might be a scam.
When it comes to circulating supply, this can also be easily be checked on CoinmarketCap by the grey bar next to the trading volume. If there is no grey bar, either the entire supply is in circulation, or the website does not have access to this data. This macro metric is important because a low circulating supply relative to the total, means that there is a risk to be dumped on by early investors or the team behind the project. This is the reason to check upcoming vesting schedules of coins and tokens allocated to the team and early investors and any other parties that could start selling.
The last indicator I want to mention is the total market cap. The larger the market cap of a crypto currency the more money it will take to push its price up. Therefore, people should look at coins with a lower market cap if they want to find a gem that could pull a 10x gain. On the other side, it also takes much less capital to push down the price. Like always in live, you don’t get anything for free so if something tends to pay out a higher reward it also has a higher risk.
Conclusion
To end this article, I wanted to say that I made all the above mistakes and ignored some of the macro metrics that I introduced. And in every case, I fell on my face with these investments. That’s why I wanted to share my experience with all of you so maybe you can avoid these mistakes. Furthermore, I wanted to mention that I never tried to do leverage trading. In my opinion people should only invest the money that they have and never put them into a more vulnerable position. With this being said, I hope you enjoyed the article and can avoid some of these mistakes during current and future times!
Published by ga38jem on
Publish0x|LeoFinance|Steemit|read.cash
On 30th October 2021
Sources:
https://medium.com/hackernoon/depth-chart-and-its-significance-in-trading-bdbfbbd23d33
https://www.alignedholistics.com/blog/why-not-making-mistakes-is-the-biggest-mistake
DCA is good but one has to decide how to do it and how much money to allocate and how many times to DCA.