With altcoin season right on the horizon I thought I would write a detailed explanation of a few rules I’m beginning to implement into my trading and investing. This bull market will make a lot of millionaires, but a lot of these new millionaires will also lose all of their gains at the end of this bullrun. It’s extremely important to exercise caution, good trading strategies and long term views when trading in this market to maximize profits and to ensure you don’t get burned by the market crash. This post will detail some rules I think everyone should live by in this bull run, proper exit strategies as well as long term strategies to maximize your gains in crypto in the long term.
Rule #1: Create a Plan to Secure Profits
This is one of the most important rules and yet it’s one that gets ignored by a lot of investors and will cause a lot of people to lose a lot of money at the end of this bull run. Let’s create two examples to see which strategy works best.
Trader 1: Buys xShitcoin at $1(going to use simple numbers for this example to make sure it’s easy to follow)
Trade 2: Buys xShitcoin at $1
Trader 1: Sells 10% of coins at 3$
Trader 2: Holds all his coins
Trader 1: Sells 25% of coins at 5$
Trader 2: Holds all his coins
Trader 1: Sells 25% of coins at $7
Trader 2: Holds onto all his coins, thinks it’s going to $10 and wants to time the market
Trader 1: Sells the remainder of his position at $9 but keeps a 10% bag just in case this project continues to moon
Trader 2: Decides to sell 10% of coins but wants to hold for higher profits at $10
Crypto winter begins and the coin rapidly loses its values and drops down to $2. Trader 1 holds onto his 10% for longterm and Trader 2 gets lucky and fully exits his position at $4(most people are stubborn and will hold their ground and wait until their investment loses 70% – 80% of its value before selling).
The profits for both traders are as follows:
Trader 1: 100 x 3 + 250 x 5 + 250 x 7 + 300 x 9 = 6000
Trader 2: 1000 x 4 = 4000
Now this being a made up example obviously means this isn’t the most accurate representation of the market or trades but the point remains. Holding and trying to secure as much profit as possible may work once or twice but you can very easily get burned by a market correction or a specific coin correction where the coin never returns to its highs. By taking small profits on the way up not only are securing some gains which you can then use to make your life better or move to other crypto plays, but it also leaves you room to capitalize on even more gains if the token continues to climb.
On a similar note, don’t commit to a project and hold on no matter what. Yes lots of crypto influencers are predicting that the market crash won’t be as bad as the 2017 one, but in reality nobody really knows, this is all just speculation! All projects, even the best ones, have the ability to drop 85-95% at the end of this cycle and may not return to their highs for several years. Lock in profits on the way up and thank me later!
Rule#2: The Goal is to Make Money!
Maximalists of all cryptos are rearing their heads and bad mouthing anything that isn’t their favourite project. In my opinion, this maximalist way of thinking is deeply flawed and will lead to many investors and traders to miss out on easy profits. Let’s take the example of Ethereum and Bitcoin maximalists who believe that you should only hold those specific coins. At these price points, the realistic max return you can expect from either of these plays is 5x for this bull run. Obviously there’s potential for more but staying within the realm of reason it would be asking a lot for Bitcoin to go above 300,000 and Ethereum to go above 10k. A 5x in one month or two months is possible with many different small to medium size altcoins, therefore I propose that if you have the funds and are open to risk, to be placing small to medium sized bets on higher altcoins and not just loading up on massive top 10 cryptos that won’t move that much and require tens of billions of dollars to move.
This will be a crazy bull run with countless opportunities to multiply your money beyond your wildest dreams, take advantage of these opportunities and don’t get shortsighted because of one crypto and one community. The goal is to make money and achieve financial freedom, being a maximalist shuts you off from many opportunities inside and outside crypto.
Rule#3:Do your Own Research(DYOR)!
This gets repeated a ton in the investing space but it can’t be repeated enough especially during this bull market where everyone is shilling you 5 different shit coins on every social media platform. Doing your own research and not following random call outs that you see online or from friends will help protect you from getting into shit projects or buying cryptos at the top. I highly recommend first spending time understanding Bitcoin and the crypto market as a whole. This takes time as you need to understand the technology, economics, politics and social science behind what makes crypto the most disruptive invention of this generation. After you have a deep understanding of crypto(I’ll be writing some blog posts this month to educate my readers on the deeper meanings behind crypto) you can then better analyze cryptos and determine whether or not they are actually solid plays you want to take part in. Blindly following others may work in the short run and could pay off in this bull run but you should build a solid foundation for the long run. Wealth creation is not something you do, it is a skill set you learn.
Rule#4: Dollar Cost Averaging is your Best Friend
Dollar cost averaging is an old strategy often promoted by legendary investors like Warren Buffet and for good reason. For those that don’t know, dollar cost averaging is the act of continuously investing on a scheduled basis, thereby taking advantage of the dips and not just buying the highs. For example, let’s say I invest $200 into Bitcoin every two weeks. Over the course of months, or even years, this strategy will allow me to acquire bitcoin at cheap prices when it dips while also acquiring it as it’s moving up.
For clarification, I don’t recommend using this strategy for shitcoins. Dollar cost averaging is a phenomenal method for long term investing where you can take advantage of short term dips to reap large rewards in the long run, you don’t want to be holding onto shit coins for the long run. This strategy will typically work best for the tokens that you believe in for the long term as the whole risk with investing is the short term fluctuations. Dollar cost averaging helps solve this issue but if you sell in the short term then you’re not giving yourself enough time to average out the cost of your accumulation. Highly recommend only implementing this strategy for projects you believe in and plan on holding for several years and you will still purchase during the next crypto winter. JRNY has a great video on dollar cost averaging that you can check out right below, I recommend subscribing to him if you haven’t already as he consitently drops knowledge bombs for beginning investors in crypto.
Rule#5: Only Invest What you can Afford to Lose!
This is standard advice in all forms of investment but is particularly important in crypto as crypto is a lot more risky and volatile compared to other traditional investments. At the end of the day, you can’t easily use cryptos to pay your bills and purchase goods and services. Keeping this in mind, it’s important to have an emergency fund of some sort or to have some money in the bank account. I know fiat isn’t sexy these days and rightfully so, but it’s important to have some left over so you don’t have to liquidate your positions in order to cover your real life costs, always have a plan and a backup plan!
Overall, these are my top 5 rules for trading and investing in this bull market. A lot of people will make a lot of money this year, and a lot of people will lose a lot of money and lose a lot of potential gains. The goal should always be to be the former not the latter. Keep a level head, make a plan, do your research and enjoy the ride. And don’t forget to follow Spectacle Investing on Twitter! Thanks for reading.