Portfolio Management and Trading Strategies Tailored for Cryptocurrency Investors

Source: CoinTelegraph

Foreword

This purpose of this article will be to provide some comprehensive trading strategies and tenets that you should consider employing if you want to be successful as a cryptocurrency trader.

Reason for Writing

The reason that I am writing this article is because numerous individuals have approached me in the past to tell me that they have suffered massive losses in the field of cryptocurrency due to the ill advice of other ‘traders’ or personalities in the space (mainly on Twitter and Telegram) and due to misinformation and scams in the space.

I have already addressed how to avoid scams in a previous article of mine

View story at Medium.com

However, I have yet to address the other points that I made in the previous paragraph, so I want to take the time to do so here.

Dispelling Some Common Myths and Really Shitty Advice

  1. TA Does Not Work With Crypto — This is a myth and the only reason that this myth is perpetuated is due to either inflated expectations or general ignorance on how technical analysis works in the first place. With regard to the former, many individuals feel as though technical analysis is some sort of ‘crystal ball’ that is supposed to give precise predictions on what will happen to the price in the future and, if it doesn’t, then it has ‘failed’. This premise is simply false. TA is meant to give the observer information about historical price information. How said information is predicted is up to the observer. But, nothing can be fabricated through technical analysis. Price information is permanent and historical and the indicators that stem from it simply provide a more clear understanding of such. Unfortunately, there are a lot of individuals in the space that do not believe in doing their research, understanding and learning technical analysis and then studying it until they become masters at it. Fortunately, CryptoMedication does — and that’s why we are the industry’s leader in dissecting it in its entirety.
  2. Buy the Fucking Dip! — Do yourself a favor and never do this. Buy what makes sense to buy based on your observations, careful research as well as fundamental and technical analysis. Making the assumption of “Oh, this is down 50%, so that means that it’s due for a bounce!” will ensure that you eventually lose another 50% at some point in time. This falls in line with the same theory that some traders have where they say, “The RSI is oversold and it has been oversold for ____ amount of time, so therefore, we’re do for a bounce back up soon!” <- While this may be fundamentally true, no one knows when said bounce will occur or how much of a bounce it will be. There’s a chance that you investing in a coin with this logic will result in a further loss of 50% or more off of your portfolio before it ‘bounces’ and the bounce may not be anywhere near where you need it to be in order to break even, let alone make a profit.
  3. HODL — Yes, I said it. This is terrible advice. Don’t just endlessly hold something. Evaluate the markets, get some intel on the investment and decide when it seems like it would be reasonable to sell. See, normally in investment situations, people use brokers who make it their responsibility to understand everything that is going on with the market and can advocate that a certain position be taken — mainly a sell or a put/short when the market is beginning to tank. However, that is not the case with crypto. And with that, has bred this idea that one should never sell their position, which is absolutely ludicrous.
  4. Institutional Money is Pouring in; Buy Now! — If I had a dollar for every time someone said this, I’d own every bitcoin in existence. Suffice it to say, don’t be one of the many suckers out there that rush out to invest money in cryptocurrency because you read a headline somewhere that said ‘Institutional Money is Pouring In!’ or you see folks on the internet in different crypto circles saying that.
  5. Institutional Money = Price Rise — Au contraire, there are many times where ‘institutional investment’ may do the exact opposite of what people hope it will do (in terms of price action).

Now, Here Are Some Tips For You:

  1. Be Faithful to TA, It Will Save You — When I say this, what I really mean is that you should actually take the time out to understand technical analysis. Do not just rely on people on the internet to tell you what will and won’t happen. Often times, the ‘traders’ that you are listening to have no greater information on what’s going on than you do and a lot of them have not taken the time to properly study cryptocurrency.
  2. Start Thinking Outside of the Box and Creating Your Own Strategies — This is something that I encourage everyone to do. Come up with things that work for you. Use your own brain and intelligence and start using the concepts that you have learned to formulate a greater strategy.
  3. Do Not Listen to Too Much Outside Feedback — It’s always great to consult some outside ideas in order to get a better sense of ‘what’s going on’ in the cryptosphere, but, at a certain point, you have to tune out the ‘noise’ and just focus on what you know to be true.
  4. Never Trade With Emotion — This goes without saying, but there are a lot of people that do this regardless. It’s understandable though. Losing trades is frustrating. We aren’t talking about video games here, this is real money. So, the stakes will always be high. No matter how much shitposting, meme-sharing, and jokes that you see on Twitter or other places where the crypto community frequents, losing money is no joke. Gaining money is no joke either. As human beings, we spend the majority of our adult lives in the pursuit of that very thing. It is the substance that ensures that we can take care of our families and help put a roof over their heads. Given these facts, I can understand emotional trading. However, the key is to never trade emotionally and the best way to ensure that you don’t is through excellent portfolio management.

Portfolio Management

So this is the crux of what this article is about. Portfolio Management.

The reason why I decided to create this article is because I believe that portfolio management will be the difference between actually being a successful trader in this space and being just another long-term “hodler” hopping from one group to another, hoping to get the right ‘signals’, tips/tricks/hints to help you find the “perfect” coin in order to make up your losses in this space or get you rich overnight.

In order to do this effectively, there are a few tenets that I believe everyone should follow to be considered proficient in portfolio management.

#1 — Set a CAP on How Much You Put Into Any Given Coin

This is one of my main rules. I don’t care how awesome you think the coin is, how “certain” you are that you’ll make, or how much money you “could have made” if the coin does actually moon — never commit more than 20% of your total investment capital into one position. Ever.

You read that right.

So, if you have delegated $1,000 to trade/invest with — do not invest more than 20%. Preferably, you’ll put in 20% per position.

Here’s Why:

It allows you to be fallible.

One fact that you must accept is that some of your trades WILL be losing trades. There’s just no way around that.

However, that losing trade hurts a LOT less if you’ve only dedicated 20% of your total income.

Let’s run through a scenario quickly:

-You have $1000

-You have identified a coin that you really like.

-You invest $200 into that coin using the 20% rule.

-You’re wrong about your theory on the coin and it ends up dropping 10% before you exit the trade.

So, in total, you lost $20 (10% of the $200 that you invested in there).

That means that, overall, you lost $20/1000 — which is a mere -2% on your portfolio’s entire delta.

Now that 10% becomes substantially more palatable. Preferably you don’t want to lose any money, but you have to embrace the fact you WILL lose money if you’re a real trader and you trade fairly consistently. [

What About Profits Though?

Now, I’m sure some of you have probably done the math and have figured out, “Wait a minute, this is all fine and dandy, but that also means that I’ve only made +2% on my entire delta if it goes up 10% too!”

This is correct.

The only thing I can say to that is — be happy about that +2% to your entire portfolio.

That’s a respectable amount to gain.

One of the primary issues with crypto is that we have become ‘numb’ to making a lot of money and we don’t want to accept any less than +20% gains on all of our moves.

We must de-condition ourselves from that mentality and learn to start taking the profits that we can get and stacking up WINNING trades when we can, because these gains WILL pile up (remember that 20% total increases as your wins increase; i.e., if you continue to win trades, you’ll go from $1,000 to $1,500. So, your 20% would go from $200 to $300)

Now, to the next point.

#2 — Limit the Number of Positions That You Open

In my opinion, the best portfolios have no more than 5 positions open at a time.

Yes, you read that right as well.

I know that there are traders out here with like 20 coins in their portfolios, but there are a number of reasons why this is a bad idea.

  1. You simply can’t keep track of 10+ coins. This space moves too fast and there’s too much shit going on at once. You’ll be stuck in front of your computer all day, and that’s not healthy or an efficient use of your time as a human being on this planet — assuming you even have the time to do such a thing.
  2. By over-diversifying, you will end up watering down your losses/gains to the point where they become negligible at best. This puts the pressure on you to have a VERY high win percentage if you are to come out as a winner as a trader.
  3. Fewer coins = greater flexibility in strategy and you can now make sure you only pick the ‘cream of the crop’. If you feel like you have to load up on 20+ coins, then you’ll be much more likely to start throwing in bad trading ideas.

#3 — Set Stop Losses

This typically goes without saying, but setting a strong stop/loss will be the difference between victory and failure in crypto.

No matter how good of a trader you are, there is a chance that you might fuck up or the market will take an unexpected turn while you’re asleep/away from your computer/in a position or situation where you simply can’t attend to the trade.

Life happens.

Make sure that you ensure you’re covered.

If you’re wondering how to set an efficient stop/loss (and what this is if you don’t know), check out this article that I wrote on the issue:

View story at Medium.com

#4 — Know When To Fold ’Em (When to Exit a Position)

This may be the hardest portfolio management principle that I’m going to list in this article. But hopefully the first three rules have helped you to understand why ‘knowing when you lost’ is absolutely essential psychological equipment if you wish to be successful at portfolio management.

Do. Not. Fall. In. Love. With. Projects.

I do not care how much you love the project. I do not care how much you believe in it. I do not care how nice the developer is. I do not care how professional they are, how ‘revolutionary the idea is’, or how expansive/intelligent the community, devs, or project leaders are.

Do. Not. Fall. In. Love. With. Projects.

Trade without emotion and evaluate things based on their objective outlook.

Trust me when I say that I admire the loyalty that some people have to certain projects. But, that loyalty is not something that will ever be justly elicited by projects in this space.

Do not let your biases blind you. Sometimes you’ll think that a trade is perfect and it isn’t. It’s a shit trade and whatever you saw that made you hop into it is now gone and the most logical option is for you to exit.

When that happens — EXIT.

Do not be another trader in this space with an absurd delta (-70% or anything in that ballpark).

I personally cut positions after a -10% or more. It just isn’t worth it anymore and I don’t load up on enough hopium to stay in that long.

Conclusion

While this is by no means a comprehensive list of all strategies that could/should be implemented in order to protect your portfolio, what I presented above in conjunction with the dispelling of common myths and perpetuation of good trading theory/psychology should set you off on the right foot when it comes to trading cryptocurrency.

For any additional information, feel free to visit/follow me on:

Telegram — t.me/CoinEducation (free)

Twitter — https://twitter.com/cryptomedicated

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