Rule 1: DO NOT invest any money, more than you can afford to lose without problems.
We started our discussion with Rule 1 because, no matter what this is the most important thing to remember. In this article I will discuss about the various pitfalls I have gone through in crypto journey and learned hard lessons. My experience will help you in safely investing and trading in crypto currencies like bitcoin, Ethereum, Dogecoin, Shiba inu etc. But remember, this is not a financial advice or endorsement of any kind. Investment and trading are subject to market risks and you are solely responsible for your decisions. If you agree, then continue reading.
How risky is crypto trading?
In short, very risky. Crypto market is highly volatile. We need to keep our eyes open otherwise anything could happen. There are multiple instances when the heat of crypto crash burned people badly. In May 2021, the price of bitcoin dropped from $60k+ to $30k in just few hours.
The yellow box in the above image shows the downfall of crypto market. This all happened so fast that a large crowd didn’t get any chance to deal with it. I was there when this happened ?.
Another devastating case was of ICP (Internet Computer) coin which raised crazily to $600 and then dropped to $29.
Similarly, there are many other big projects which showed potential at first but then disappointed. One such case is PundiX which went to $7 and then dropped to $0.7. That’s 10 times less. So, if you invested $1000 you will end up with $100.
Crypto affects all kinds of traders and not just small ones like us. Billionaires like Mark Cuban could also be the victims and we learned that from a big time crash of IRON token in 1 day. It dropped from $60 to $0. Can you believe it? If not then read this. Now Cuban demands regulation over crypto. Hilarious ?.
Why crypto is so volatile?
There are many reasons behind it. If somebody is earning money then somebody is losing it. If the price is increasing, it means people are buying it more than selling. Those who are selling in profit are getting a piece from those who are buying. There is transfer of money from one person to another. It might be possible that a single person become millionaire while hundred thousands of people loose $10 each. But what are the chances that the single person will be you?
Since crypto has no defined regulations, so governments around the world imposes barriers for it which leads to panic among investors and bam, market crash. The May, 2021 crash was due to China government declared it illegal and started hunting miners.
Influencers also play a vital role. Powerful people like Elon Musk could drive the market by their mere tweets. We saw that on numerous occasions. His dislike for bitcoin crashed the market but 1 tweet in favor raised it from $30k to $40k in a day.
This tweet crashed the coins –
Tesla & Bitcoin pic.twitter.com/YSswJmVZhP— Elon Musk (@elonmusk) May 12, 2021
This tweet again pumped it back –
Spoke with North American Bitcoin miners. They committed to publish current & planned renewable usage & to ask miners WW to do so. Potentially promising.— Elon Musk (@elonmusk) May 24, 2021
A lot of other reasons could be but I can’t confirm them like might be the deep pocket investors raise the valuation of coins and create hype in the market. When lots of people buy at high prices, they dump their coins at multifold profits and leave small investors crying. Again, there is no proof of my saying ?.
10 Rules of safe investment in crypto
I have already listed the first and most important rule at the beginning of the article. You can loose your money in seconds but it takes months or years of hard work to earn it. So, invest sensibly and only what you can afford to loose without issues in your life.
Rule 2: Don’t be greedy
Greed is one of the factor which makes this investment so lucrative and volatile. The whales of the market use the greed of small investors to make tons of money. Don’t try to be a millionaire overnight. Things doesn’t work like that. You may have heard some stories of people getting super rich from crypto but there are 1000 times more who lost a lot.
Rule 3: You are unlucky so am I. Don’t cry
If you have invested in crypto before you might have noticed that when you place a bid it won’t reach there. But when you raise it and buy then coin starts dropping and stay at lower price. You feel like you are the unluckiest person on Earth. So am I and so a lot of people out there. Be patient and don’t overexcite with the upticks.
Rule 4: Invest only half money
This rule will keep you safe from market volatility and losses. Only invest half of the total money set for investment. Don’t be greedy or ambitious.
Suppose you have $1000 to invest, then only use $500 and keep $500 in USDT (USDT is the swap token whose value remains fixed near to USD. It doesn’t change with crash or pump). Now trade with $500 and try to make small profits. If something bad happened and market crashed, then you will have $500 in safe to recover your lost money easily.
Rule 5: Change mentality. Try to be consistent and not rich overnight
Everybody in crypto is fighting to make profits but in order to make profits, someone will have to bear the loss. You need to be on the profit making side. This is only possible with patience and satisfaction. Try to earn $30 per day instead of $100 on $500 trade. It will be easy and much less risky. Also your rate of earning will increase everyday because next day you will have $515 to invest ($15 will go in safe).
Rule 6: Take note of 24h high and low
If the market is somewhat stable then keep note of 24hours high and low of the coin. Put your bid at some price near to the low range and wait. Most probably the coin will reach the low point sometimes in a day and your bid will be bought. Then you can sell it at some higher price with risk free profit.
Rule 7: Place multiple bids at multiple rates
Do not put your amount in single bid. For example, you have $500 and coin’s 24h low is $40 and high is $55 then divide your amount and place bids at $38, $40, $41, $42, $45. Now if it reached only $45 then 1 bid will be placed and that will bring good profit because the coin will rise to $55+.
If it reached $40 then 4 of your bids will be placed and median will be decided depending on the division of your total invested amount among bids. Let’s consider that the median is at $43, then if the coin raised to even $44 only, you will still be in profit.
But if it dropped to $35, then all your bids will be placed and again your median will decide your loss. Most probably either you won’t get profit or a very little loss. Because your median got lower due to multiple bids. Here the safe amount will help you in covering your losses pretty fast.
Rule 8: Buy neither downtick nor uptick
Remember, when it is rising fast, it is dangerous. When it is going down fast, its time to wait for it to settle. Market crash is bad but also an opportunity to invest for long period. In both sudden rise and fall, you should show patience and wait. Let others enjoy the period.
In all cases you will be settled. Suppose market crashed badly and your $500 got stuck. You are at the loss of $250. But you have $500 in safe and $250 from invested amount. Total you have $750 which you can use to fulfill the loss of $250 very easily.
If market crashed but recovered then also you are fine because your loss will recover with market pump.
Just you have to be patient with your safe money. Generally when market crashes, it keeps on crashing for few days because of panic in the people. Wait for it to settle.
Rule 9: Use Leverage tokens but for short duration
You might know that there are leverage tokens which gives more returns than coins. Even twice or thrice but same goes with loss too. You need to be careful with them. Leverage tokens are generally UP/DOWN tokens where they behave opposite to each other. For example, leverage tokens for bitcoin are –
BTCUP – It increases as bitcoin rate increases with a factor of 1.5 to 4.
BTCDOWN – It increases as bitcoin rate decreases with a factor of 1.5 to 4.
So, if the coin rate decreases, the corresponding DOWN leverage token shows profit.
Take good care because these tokens are managed by exchanges and they keep interfering with prices. Remember, no one wants you to get rich. If you lose money that’s your problem but if you found opportunity to earn big amount then authorities will try to prevent it. They will later call it terms & conditions or protecting users or business etc. Something similar happened with Binance in May 2021 crash. People put money in DOWN coins to get the benefit of crash but Binance froze their amounts in leverage tokens and prevented them to purchase or sell which later resulted in big losses.
Apart from this, there are few per day charges involved with these tokens to keep them in wallet. Do not keep them for long time. Do not redeem them, else trade them in market. Redeem cost is higher than trading.
Rule 10: Invest a little in good projects and new coins
A good project is considered by people for investment. If it is new and not on exchanges then its price will be very low. You may put a very small amount in it say $20. This is a risk investment. But if the project is good then coin will get listed on exchanges and will get a sudden boost. Sometimes 100x. So your $20 could become $2000 (take example of Shiba Inu coin). But do not put a lot of money in new projects because their price could get to $0 too.
Never buy a high valuation new coin. Take example of ICP coin which suddenly raised to $600 and fall to $30. If you find a big tick, never purchase and run away from there.
Crypto is a risky business but if you are satisfied with small profits or want to invest for a long time then it’s a pretty interesting investment. Follow the above 10 rules and do your own research. It’s always hard to earn money but it’s a bit easy to prevent losses.