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Avoid thinking of investment as some 'become millionaire in a week' scheme, says Nikhil Sethi, founder and MD, Zuvomo, a crowdfunding firm.
Always think of long term gains and plan your trades accordingly.
So, the buzz about bitcoin and cryptocurrencies has reached you, and you are set to diversify your investment portfolio by investing in the crypto market.
Good move! But, the crypto market is still new with extreme volatility and little data for past performance.
Crypto is undoubtedly a high-risk high-reward market, but you need to lower the risk and increase the reward to make your trades profitable.
Cryptocurrencies could be your gateway to financial freedom given that you educate yourself about the market and underlying technology instead of chasing unrealistic gains.
Blockchain is at the core of the cryptocurrency market. The immutable nature of blockchain's distributed ledger technology makes crypto transactions safe and hack-proof.
The crypto industry is decentralised, putting investors in charge of their money.
As the adoption of revolutionary blockchain technology grows, we will see more and more crypto tokens emerge in the market.
India has more than 100 million crypto investors, the highest in the world. Around 20 million people entered the crypto bandwagon in 2021 alone.
Investing in cryptocurrencies is certainly a profitable business if you acquire proper trading knowledge.
Generic Investment Thumb Rules
1. Educate yourself
Be it crypto, forex or stocks market, educating yourself is vital to identifying profitable trends and making consistent gains.
Acquire valuable knowledge about the industry from books, blogs and other sources.
Follow trusted influencers, have discussions with friends and family who are into trading.
Chart out a proper investment strategy and test it with a minimum amount.
2. Diversify your portfolio
Avoid investing all your money in a single trade.
Divide your funds as per your investment strategy and invest them in different stocks/coins.
Even if one or two trades turn out to be loss-making, your overall portfolio will still be in profit.
3. Corrections are business as usual
The market moves both ways and hence, a sudden price drop or correction is a part of the game.
Treat every correction as a dip or sale and keep loading some more every time a correction occurs. You will be in profit as soon as the market recovers.
4. Book profits before profits book you
Make sure to book profits at regular intervals to make the most of a green market.
The next big correction might just be around the corner and you should have enough fuel to load more when a dip occurs.
Waiting for 10X, 20X from a single investment seldom works.
Always have a stop loss in place. Before you put money in a trade, you should know how much you are willing to lose in case a big red candle foils your plan.
A good investor knows when to cut a trade.
5. Long term investment
Avoid thinking of investment as some 'become millionaire in a week' scheme.
Always think of long term gains and plan your trades accordingly.
There are more than 300 million crypto investors in the world and over 18,000 businesses are accepting payments in cryptocurrencies as well.
To do well in the crypto industry, you must understand its unregulated nature and volatility.
Things you need to know as a newbie crypto investor
1. Understand what you are getting into
Blockchain is the technology powering bitcoin. However, blockchain carries many use cases beyond bitcoin and since the latter is powered by the former, the price of bitcoin is bound to rise with the increasing adoption of blockchain.
Before you invest in a crypto, understand the underlying technology and its use cases.
2. Be ready for extreme volatility
Crypto market is unlike any other market and the high volatility is the biggest differentiating factor among all.
The crypto market surged by over 20% over the past week.
There are some coins whose prices surged by more than 3,000% in 2021. But just like the exponential gains, the crypto market has also witnessed several big dumps.
As an investor, you must be prepared for both scenarios.
3. Selecting the right exchange
The market is flooded with tons of exchanges claiming to provide the best services.
Double-check the authenticity of an exchange before signing up and putting your funds there.
Some of the most trustworthy crypto exchanges in India include WazirX which is backed by Binance, the biggest crypto exchange, Coinswitch Kuber and Huobi.
4. Security
Once you sign up on a crypto exchange, make sure to make your account secure by enabling 2FA.
If you are using a decentralized wallet, never send your private keys or crypto to anyone.
5. Stick to blue chips
The potential of making a fortune in the crypto market is huge but as a beginner, you must stick to the blue chips and avoid chasing too many coins.
Cryptos like Bitcoin and Ethereum are less volatile so you can make steady gains and get a hold of crypto trading.
Always buy assets that have utility and real-world adoption.
6. Do not FOMO
Fear of missing out is not good in any field but in crypto, it can be costly.
Suppose you got to know about a coin that has pumped 20% and you think it has more potential to go up and you put all your funds in that coin.
The crypto market is full of opportunities and you aren’t missing out on anything just because you missed on a pumping trade.
Keep an eye on the high and lows and buy the dips to maximize your gains.
7. Beware of Scammers
Scammers are the biggest threat to your portfolio. Beware of fake airdrops, fake 'signals' and pump and dump schemes.
Never send money to anyone no matter what.
The Internet is flooded with fake influencers and scammers making fake accounts of genuine influencers to scam people. A record $14 billion was stolen by crypto scammers in 2021 alone.
Avoid adding to their gains by falling prey to fake promises.
Cryptocurrencies are fuelled by the underlying technologies and their rise is directly proportional to the increase in real world utility of these technologies.
Understanding the underlying technology and remaining unaffected by temporary losses is critical to profitable investment.
As an investor, you need to keep educating yourself about the emerging technologies and trends.
Always make decisions based on thorough research and understand what you are investing in.