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Creating a Successful Cryptocurrency Investing Strategy

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Creating a Successful Cryptocurrency Investing Strategy

Having an investment strategy is one of the most important aspects of cryptocurrency investing. Without a strategy, you’re more likely to make decisions that you’ll end up regretting in the future. You’ll also be more prone to making emotional decisions insead of operating based on logical reasoning. 

Most investors put off making an investment strategy because they feel like they can make better decisions in the moment. But the fact of the matter is that once an investor makes just one bad emotional decision, they’ll regret not coming up with parameters that define how they navigate the market.

On top of that, some investors decide against creating an investing strategy because they believe that it will take too much time or that it’ll be too complicated and tedious. But the fact of the matter is, creating an investment strategy can be as simple as defining when you buy and sell and what you do with your holdings in the meantime.

This article is designed to help you create your own cryptocurrency investment strategy at the most basic of levels, to prevent you from making irrational and emotional decisions later on when you’ve finally realised some success.

What you invest in

Fundamentally, one of the most basic parameters that a crypto investor needs to define is what types of cryptocurrency they invest in. Here, tolerance for risk and level of competency should be the two most important factors, but it’s also important that an individual invests in something that they find interesting.

One of the biggest mistakes that investors make is that they invest in too broad markets. They don’t dial in a specific niche and become an expert in what they choose to invest in. The problem is that without becoming an expert, an investor will never be able to distinguish the good products in a particular market from the great ones.

Sure, passively dollar-cost averaging the “Blue Chip” projects doesn’t require picking a particular niche. But when an individual is attempting to make regular trades, or they want to make immense gains, picking and sticking to a particular niche is very important.

Examples of crypto niches include DeFi, NFTs, GameFi, and ecosystems.

Entry Strategy

Having an entry strategy is super important because it helps define WHEN an investor should be buying. Historically, it’s been best to spread out purchase over a period of time. This way an investor will enter the market at a much more averaged price. The easiest way to do this is by setting specific dates for when to buy more cryptocurrency. However, a more active approach might yield better results, without having to do much extra work. For example, an individual can choose to invest regularly in market dips. This way, whenever the prices crash, the investor can use it as a buying opportunity.

Exit Strategy

Having an exit strategy is just as important as having an entry strategy. Investors that do not set specific exit goals will find themselves in a dilemma when it comes to taking profits or derisking. In most cases, it’s best to define how and when you will take profits before you actually make an investment. This way, your strategy will be based on logical thinking rather than emotional reacting.

The ideal time to take profits or de-risk is very circumstantial. For example, with “Blue Chip” cryptocurrencies, it’s okay to hold on to them for longer periods of time because these projects are much more established which makes them less prone to extreme volatile price action. However, with smaller projects that are prone to extreme volatility, it’s probably best to recuperate your initial investment as soon as possible. This way, in the worst case, you’ve still regained your initial capital, and in the best case, you’ll be letting the profits run.

Passive Income

What an investor decides to do with their holdings is also another important parameter to outline. For instance, investors can choose to simply hold their investments in a secure wallet, or they can choose to earn interest on their holdings. If you are planning on investing for the long term, it’s wise to put your crypto holdings to work and earn passive income. The easiest ways to do this is by natively staking, lending on centralized platforms or providing liquidity on DeFi protocols. 

Please note that these methods are not ideal for investors who’re looking to make trades more regularly because some of these methods have lock-up periods.

Final Thoughts

Creating an investing strategy is one of the most crucial things an investor can do. Without a strategy, investors will be prone to operating on emotional reactions. This is never ideal. On top of outlining what crypto you want to invest in, as well as your entry and exit strategies, parameters like what you will do with your crypto and the time frame that you intend on investing for, are also very important factors that should be carefully considered.

Disclaimer: Nothing in this is intended to serve as financial or investment advice. This is for educational and informational purposes only.

Hi, I'm Jack. I'm a creative and technical writer in the cryptocurrency industry. I chose a career in blockchain because I believe that it is the technology that will have the biggest impact on and revolutionise the world as we know it. Being involved in that excites me. Although its easy to get caught up in the hype surrounding cryptocurrencies, I'm more excited to see blockchain realise its full potential and completely disrupt the legacy systems of the 21st Century. I've been in this industry for multiple years and I've worked for some of the biggest research and development companies as well as smaller, startup crypto projects.