How to trade crypto with little risk.

Feb 16, 2021 | Community Tutorials

Nothing in this article should be taken as investment advice. Please always do your own research and never invest more than you can afford to lose. We are literally, idiots so don’t listen to us.

Timing is a virtue and how we see it you have to be in it to win it – I don’t mean you have to be so deep that you’ve spent your life savings and eating nothing but bread and butter.

Crypto markets are very volatile, so when the market dips, like it always does, having a small proportion of any money you want to invest means when the market swings up, you’re not missing out looking for the exact perfect entry.

Of course, technical analysis does interpret the market for a good position to buy but this is open to error and waiting for the right time you might just miss it.

There’s always potential the market could decrease further and you lose a proportion of your initial investment. If this happens there are strategies you can take when market buying to decrease this risk, if the market takes a turn for the worst.

At the end of the day, there’s no point trying to find the exact bottom because the likelihood is you are going to completely miss it!

Believe me, all of us have tried to find the bottom and its impossible, but fear not we’ve always ended up net-positive through time, patience and some easy ways of capitalising on the market whether it goes up or down!

Don’t overcomplicate it. Look… when the market drops, keeping your decisions logical is probably one of the hardest things to do. When your position is negative and you’re losing money, all you want to do is sell whilst you still have money.

Realistically though it’s not going to hit zero and if you’ve done your own research and believe in the fundamentals then it shouldn’t be down forever.

When the markets down that’s what the big fish (whales) want you to do they want you to sell so they can buy your coin for cheaper and make even more dollar, once the market shifts to be bullish. They know this and therefore a lot of the price swings you see (corrections) are aimed at making us psychologically fear losing our money.

This is the point where you should be using your head and holding your position. You should see it as an opportunity when the market dips as a BIG FAT SALE. A second chance to buy some more coins at the same or a better price.

Dollar-cost average

One simple method is Dollar-cost averaging (DCA) and is a way to build your position whilst reducing your risk in the market.

Dollar-cost averaging allows you to increase your position size over time by buying several different price points to collectively adjust your average buy price.

This means that even if you buy a bit too high compared when the market shifts you can become net positive at a lower price, than when you originally invested, therefore this decreases the overall risk of your position being underwater, as your bought high.

Say your mates have all just bought at $1 per coin and the market has moved up to $2, but when you come to buy the market has not dropped to $1.5.

You have $100 to invest but you’re not sure if the market is going to continue to move down or move up. Dollar-cost averaging is hedging your bets so instead of spending $150 at $1.5, you decide that you’re going to buy half at $1.5 and see what the market does.

In this case, the market further drops back down to $1! Your original investment is down by 33% but the project in long term looks like it’ll surpass the price of your original investment.

Luckily you didn’t spend all your investment money so you can invest your further $50 at $1.

This has essentially halved your average buy-in price to $1.25. The following three days the market price increases back to $1.5 – instead of being back to your original investment your now net positive and have made $0.25 per coin. Simple…

Position Sizing

See me and my friends all have a relatively similar strategy but one thing I believe in is position sizing. If you build a position to the point where you can keep some coins for the long term, as the price moves up you can take off a proportion at given points, to take some of your profits.

This way, it doesn’t just remain a number that’s a figment of your imagination or “unrealised profits. Again this means you’re reducing your risk as you’re recovering your initial investments so it’s important to consider.

Position sizing is important because it can tell you really what proportion of your money you would need to invest relative the how much the price would need to move.

In essence, the larger your position size, the less the coin has to move up in price to make significant gains but again, CAUTION as this also exposes you to the market BOTH POSITIVELY AND NEGATIVELY. So it’s important to take this into account before ploughing in $1500 as your mate thinks its a good idea!

This brings me back to Dollar Cost Averaging. If you DCA into a trade to build your position you increase your position size but this can either be done as the market is moving up or moving down.

If your already in profit and you, for all-purpose sake, have doubled your money your position is relatively de-risked, so if you bought more at this larger price then your still more than likely still going to be in profit.

This profit is slightly reduced as your average price per coin has increased! That is until however the market moves up further and your profits will increase relative to your size increase.

The position size also relates to the price of the coin and likely market movements. You might be able to buy certain crypto for 0.0001 but that doesn’t mean, just because you’ve managed to buy 1000000 coins your instantly going to be a millionaire.

The price movement may realistically only double or triple from its current position, so it may only make you a couple of hundred dollars!

The thing is to keep this in mind when picking a target price compared to your position size to see how much profit your likely going to gain when spot buying.

To calculate how much profit you could potentially make from buying that potential 100X gem you can use the following:

Profit = Predicted Price Target x Number of Coins owned) – Initial/total investment

Say you buy $100 worth of crypto for a $1 and the price increases to $3 in 6 months and you decide to cash it out -your profit would equate to the following:

Profit = ($3 x 100 coins) – $100 = $200 profit with $100 your initial investment

You can use this when looking at what coins you’re going to buy and DYOR to understand the current market cap of coins and their potential!

Luckily, we’ve already written an article to understand more on this give it a read HERE

TL;DR

  • You don’t have to spend all your money in one go to be in a position you can TAKE. YOUR. TIME.

  • You can apply this dollar-cost averaging if the market is moving up or down if your unsure and want to wait it out to see what happens!

  • You don’t have to invest in everything at once you can continually build a position especially if its a long term investment

  • There’s no use in trying to find the exact bottom but don’t panic the price goes lower. If you’ve done your own research (DYOR) the price will recover with time!

  • Be realistic about how much profits you’re going to make from a position size and calculate it using the formula: Profit = Predicted Price Target x Number of Coins owned) – Initial/total investment

  • Taking profits as you go allows you to cover your own back and take back the money you’ve invested over time and there helps to prevent you from losing it should the market crash!

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