We all know, the crypto market is extremely volatile and unpredictable at times, it can offer great earning opportunities but also high possibilities of loss.
For this reason it is necessary to have a strategy before investing, which is well defined and allows you to reduce risks while maximizing profits.
The investment strategy
It is a plan that defines objectives, rules and actions that you intend to take to achieve them. The factors to consider are the following:
- time horizon, which can be short, medium or long term
- risk level, i.e. how much risk you are willing to tolerate. To give a practical example, the risk associated with investing in Bitcoin will certainly be lower than a memecoin
- investment objectives, i.e. the reason why you invest, for example to generate income, to diversify your portfolio or support new projects.
Stop Loss and Take Profit
Stop Loss is an order that is automatically executed when the price drops below a certain level
Take Profit is an order that is automatically executed when the price rises above a certain level.
It is important to set these two orders to limit losses, maximize profits and reduce the emotional component.
Set risk and reward percentages
Risk percentage: percentage of capital that you are willing to lose in the event of a failed investment, in general it is advisable not to invest more than 5% of your capital in a single asset
Profit percentage: percentage of profit that you intend to make before selling an asset, generally you can sell it after reaching 10/25%, but it is purely subjective.
Some famous strategies
Buy and Hold: simply buy and hold a crypto for a long period of time, regardless of price fluctuations (months/years)
DCA: Dollar Cost Average, consists of investing small amounts of money in regular intervals, recommended for emotional beginners but also for those who believe in a cryptocurrency in the long term
Short-term trading: the riskiest strategy and recommended only to those who have studied and therefore to experts, it can offer greater earning opportunities but also more substantial losses.
A well-defined strategy is essential to invest in cryptocurrencies in a conscious, responsible and absolutely emotionless way.
Defining the time horizon, risk level, objectives, etc. are all fundamental elements to consider and establish.
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