Investments offer many opportunities for people to strike it rich. Stocks, bonds, annuities, real estate, retirement savings; and even the latest rave, cryptocurrency are time proven tools and vehicles to help people achieve their financial goals. While each investment type has its own unique features, risk factors and trading style, there are common principles that apply if you want to be a successful investor.
Opinions on the various money markets may be wide and diverse, but few can argue about their potential to convert paupers into millionaires if the right principles are adhered to. Here, we look at some general trading techniques that most successful investors use as guide, and that you should learn from.
Diversify your investment
You should have at least 5 trading options to diversify your investment portfolio and in different market caps. Splitting your investment in high, middle and low market caps is a smarter investment strategy. This way, if the market goes against some of the investment type or market in your portfolio, you will have others to recoup with.
Everyone has heard the adage “don’t put your eggs in one basket”. If you’re a cryptocurrency investor, for example, this can be interpreted to mean “don’t put your crypto in one portfolio”. Diversification is the key to success in any investment, and cryptocurrency is no exception.
Most new investors identify one market or trading option and place their entire investment budget on that investment. This is such a bad idea because if the market goes down, they will lose their entire capital. It is best to identify multiple investment options with potential and spread your capital among them.
Don’t diversify too much or too quickly
Inasmuch as you should not put your eggs in one basket, you shouldn’t have too many baskets that you have problem carrying them. While diversification is great, over-diversification can cause problems for your portfolio. The capital that should be used to invest in ‘at most’ 5 viable trading options will be spread too thin for say, 10 cryptos; and chances are that you will end up with a portfolio that is 80% useless.
This may seem contradictory to the above point, but it is actually very important. There are virtually hundreds of crypto coins in the market, for example, with new ones coming in everyday. This makes it almost impossible to tell the legitimate from the scams.
The trick is to do a proper research in order to identify coins with potential. These are coins that are widely distributed with a high trading volume and high market capitalization. However you decide to go about it, make sure you don’t throw your money out there too much.
Only invest money you can afford to lose
Getting involved in the money market should be a strategy investment and not an emotional way to make money. Rather than looking for a huge sum of money to invest with, start with a small portion of your saving, something that won’t hurt too much should the market go against you. A good idea is to never use more than 10% of your monthly income when investing in a volatile market such as cryptocurrency.
Most newbie investors rush into money market with the intention of making a quick killing. They feel guilty for not having invested in the past, and think that if they had, they would have become billionaires now. So, they rush in with a vengeance. They invest with money they cannot afford to lose, such as obtaining loans and playing for high stakes in order to make for lost time.
This is such a terrible idea as these investors may end up selling their portfolio at a loss to cover the cost of their debts. Sometimes, they cannot even raise enough from their portfolio to pay up; and they end up losing their capital and getting in debt.
Don’t panic buy or sell
Experienced investors know to never sell off their assets in a panic whenever the market shows the slightest signs of going south. Sometimes, selling off can actually be the right choice, but you have to be sure you are not selling in a temporary slump.
The money market can be a very volatile one; prices swing whichever way for even the smallest reasons. Inexperienced investors are prone to panic whenever the market swings, and this can lead to panic buying or panic selling.
Take the Bitcoin spike of December 2017 for instance, a lot of people wanted to take advantage of the high and so they jumped on the bandwagon and bought Bitcoin at about US$17,000 per coin. As at the time of this writing, Bitcoin is slowly trending towards the US$7000 mark, a 40% loss.
Yes, Bitcoin got to an all time high, but that doesn’t mean you have to buy then. You have to be sure you are taking the right step at the right time. Sometimes, an all time high is the best time to sell rather than to buy.
Apart from Bitcoin, most new investors also rush to buy touted coins without doing their due diligence. They are in a hurry to buy, so that when the coin appreciates, they can sell. Most new coins however, never make it to the point where it becomes valuable.
Have an exit plan
When you have made a substantial profit on your investment, it is a good idea to cash out as soon as possible, take home your profits and look for another viable option to reinvest in. Most successful traders have an exit plan. They’re not just winging it along; they have a clear view of the market, trends, statistics and tactics and know the perfect timing to reinvest a percentage of a profit or to hold back.
As I pointed out earlier, the money market can be extremely volatile; prices go up and down without much notice. Most new traders fail to book their profits and make an exit when the going is good. They hope the price will go up more, and sometimes the reverse happens.
Granted, there are times when you see the prices going higher after you have exited the market, but as a trader and an investor, this should not bother you. A good strategy, however, is to sell off your stocks in stages instead of all at once. This way, if the prices go higher; you can still make a bit more profit.
Making the right decisions at the right time is the key to doing well in crypto.
Sometimes, investing in cryptocurrency can seem exhilarating in part, and terrifying in part. Even with the best of analysis, charts and predictions, you may really tell how the market will go.
But while there are some new investors who have their investment careers ended even before it starts, there are others who are fortunate enough to make it flying by the seat of their pants, others .
In the final analysis, if you can stick with proven investment principles such as the 5 listed here, you will be able to navigate the complex waters of the money market successfully without losing your shirt, or your mind.