Want to get into cryptocurrency? Here’s what you need to know before you invest.
A lot of people are investing in cryptocurrency and it’s becoming increasingly clear that it’s not just a passing fad. It’s also clear that it’s potentially very lucrative — though not without risks. So, before you invest in cryptocurrency, it’s a good idea to have a goal in mind and know how much you can afford to lose.
Not many people ask themselves why they are you investing? Most will say it’s to make money quick, while others will say it’s a future investment in blockchain technology. For others, it might just be out of curiosity. These are already very different reasons that should produce very different strategies.
For short-term gains, it would make sense to buy low and sell high — but there’s a lot more to it than that. You’d need to choose a coin with high liquidity, have a sense of risk management, and rebalance your portfolio every so often. Without a plan, you’re simply not going to produce good results.
Likewise, if you’re betting on future technology then you’re likely making a long term-investment, meaning you’re going to hold, or hodl. That’s what a lot of early bitcoin and ethereum holders did, but that doesn’t mean it’s the right strategy for you and your goals. And even this purpose still requires research. There’s a ton of investment opportunities, and many of them will not pan out.
No matter your reason, don’t just gamble your money away because you “feel” like it might do well. Have a reason for why you’re investing, how much you’re investing, what you’re investing in, and the timing you’re choosing to make the buy.
Once you know why you’re investing, ask yourself what you want to gain. For example, how much profit are you looking to make? To meet your goal, how much time, effort, and research are you willing to put in? What is your stop-loss? Before you invest, know your objective and go about it rationally. Since most people won’t have much time to spare for research, you can use cryptocurrency trading tools to aid in the decision making.
Another thing to keep in mind — if you have experience trading stocks, don’t assume cryptocurrency trading will be the same thing. Cryptocurrencies are not stock. You can use tools like RSI (relative strength index) and ADX (average directional index), which are certainly helpful, but cryptocurrency is way more volatile and the market tends to be much more emotional than the stock market. Think FUD/FOMO: fear, uncertainty and doubt/fear of missing out.
If you can keep a level head, devise a plan and stick to it, while properly managing risks, then crypto investing might be rewarding for you. How involved you get should be dependent on your goals.
Remember, whether or not cryptocurrency is a good investment for you depends entirely on what you think the future will look like and not what the past growth of cryptocurrency has been.
Why do you invest in cryptocurrency? Let us know in the comments below!
Images courtesy of Shutterstock.
DISCLAIMER: The information contained in this article is for informational purposes only and is not intended as investment advice.
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