*If you don’t feel like reading, you can scroll down and watch the video at the bottom of this page.
For most people entering the market, the first cycle is a leaning experience. Whether they buy at the top, or buy at the bottom and ride the pump – they end up getting rekt regardless.
Having experienced multiple cycles now (and going through the mixed emotions associated with them), I figured I’d offer some advice to the newcomers so hopefully you don’t make the same mistakes most people do.
Here are my top 6 crypto tips for beginners..
Protect your crypto by using a hardware wallet.
Don’t keep a significant amount of crypto on a mobile wallet, and especially don’t keep it on a centralized exchange. Two examples as to why you shouldn’t do so are the recent hack of the atomic mobile wallet, and the FTX exchange theft.
The solution is to get yourself a hardware wallet and protect your recovery phrase. Do not allow it to be exposed anywhere online. They’re typically 24 words, which is a lot to remember, so here’s a solution..
It’s not a good idea to write all the 24 words down on a single piece of paper, because if someone finds that (and is able to identify what is it), they’ll have access to your funds.
Instead, you can leave a few words off and just remember them. Or, if you don’t think you can.. then save the missing words in a different area just in case you forget. That way, if someone you don’t trust finds the paper, they won’t have the entire phrase, and thus.. they won’t have access to your funds.
Don’t blindly follow crypto “influencers” on Youtube
Some of the most popular Youtubers have a long track record of giving terrible calls. People seem to have short memories though, so they’re able to maintain their following and continue to dispense bad advice.
Just like the stock market, there’s big money to be made by using influencers to manipulate the markets. Take Jim Kramer for example, who is the host of a show called “Mad Money” on CNBC.
His track record is so poor that an “inverse cramer” ETF has been created for people who want to bet against his picks. Doing so has been shown to be quite profitable.
Think about it. Smart money needs entry/exit liquidity. They need to get retail investors to sell their stocks/coins to them at the lows, and likewise, they need them to buy their stocks/coins at the highs.
It’s quite logical to suspect that a behind-the-scenes deal has been made with some of the largest influencers to get them to spread hype or “FUD” (fear, uncertainty, doubt) at these precise times.
Here’s a tip..
Whenever you see an influencer on Youtube acting overly confident about a specific price target – be suspicious.
I’m a relatively experienced trader, and I’ll tell you straight up – I have no idea what’s going to happen with the price.
I work within a range of support and resistance levels.
If there’s a macro downtrend, I will look to sell (short) resistance levels and take profits at the nearest support.
If there’s a macro uptrend, I will look to buy (long) support levels and take profits at the nearest resistance.
When these Youtubers are calling price targets that are below/above major several resistance/support levels, they’re full of it. They have absolutely no way of knowing if those areas will break or hold.
Point being, you need to learn how to read charts and identify good entry & exit points for yourself. Don’t rely on others to do it for you. Here’s a basic trading strategy you can use to do so.
Take your profits, or someone will take them from you
If you’ve been through a full cycle, then you’ve likely experienced the feeling of pure euphoria when looking at the value of your balance at the peak of a bull run. You felt like a genius, right? Let me guess, you were making plans with your unrealized gains and waiting for it to just go a little bit higher before cashing out?
Yea, I’ve been there too. and I know how it feels when it all comes crashing down. That crash is due to other, more savvy individuals taking YOUR perceived profits off the table for themselves.
It’s so easy to become detached from the true value of your balance during a bull run. It came so easy, but in the real world, you’d likely have to work for years (if not decades) to earn that amount in a traditional way.
If you’re lucky enough to find yourself in a situation with an inflated balance and a feeling of euphoria, here’s what you can do to shift your mindset and reevaluate your position..
Envision that you were completely out of the market, and that you had your life savings sitting on the sidelines. If your crypto portfolio is valued at $250,000, ask yourself if you would inject your $250,000 life savings into the market at that particular time. Would you buy those massive green candles after an extended run up?
If that seems like it would be a stupid thing to do, then maybe you should consider taking some profits off the table. If you wouldn’t buy it, then why are you holding it?
If you would only put $50,000 of your $250,000 savings into the market at that time, then maybe you should consider realizing $200,000 worth of profits.
I understand though. If you started with $10,000 and it’s now worth $250,000.. then it’s tempting to think that you can hold out for another 4x and hit a million!
Do you know what that feeling is called? It’s called GREED.
Greed and fear drive the markets, and it’s why so many of these chart patterns keep repeating themselves. Human emotion is both repetitive and predictable.
Step 1 to becoming a successful trader is being patient and controlling your emotions.
The market isn’t going anywhere, so you can always lock in that $200,000 profit and look for an opportunity to re-enter at a later date. Yes, it may continue on its upwards trajectory in the short term, but we’re talking about crypto here. It’s a fast moving market and there’s always a crash.
Speaking of which..
Learn how to short
It’s a horrible feeling when you’re holding a large position that seems to be bleeding out every time you look at the price. The prolonged, bear-market drawdowns in crypto can be gut-wrenching, and for the sake of your financial (and mental) health, you really want to be on the right side of those moves.
During my first cycle, I had no idea that shorting was even a possibility. I figured the only way to make profit in crypto was to just buy, hold and hope for the price to go up.
It wasn’t until I saw people celebrating the crash in a Facebook group that I realized they were profiting off my misery.
I then looked into shorting, which was a relief as it gave me more options. I could benefit regardless of which direction the market was moving.
The best part was realizing that I could essentially sell coins I didn’t own via futures markets, and use leverage to amplify my position size.
Shorting has a very distinct advantage to the buy/hold strategy.
When you buy and hold, you really don’t know if and when the coin you bought is going to move.
With shorting however, you already know. You can see exactly which coins have pumped, and you can look to enter a short position to profit off the inevitable pullback.
Think of it like playing the whack-a-mole game. You don’t know which coin is going to pop, but when it does, you’ll be waiting there with a hammer ready to slam it back down.
Of course, in order to be successful, you’ll need to have a proven trading strategy and be able to identify when the uptrend is weakening. If you don’t know how to do that, then I suggest watching this video.
For the detailed instructions on how to short Bitcoin and other cryptocurrencies, refer to this tutorial.
Don’t get emotionally attached to a particular coin
This is a big one! People spend a lot of time researching the fundamentals of various projects and they oftentimes develop an attachment to a particular project and the community that it supports it. There are telegram groups and subreddits where people develop friendships based on their shared investment.
While I certainly see the value of fundamental research (which is why there’s a project overview section on this site), you should still take profits when your favourite coin has seen an explosive run up.
Even if you think it’s going to change the world, it’s still going to crash. Doesn’t matter.
Just about every coin tanks during the bear market. The drop is based on money flow and human emotion, not fundamentals.
If you can stomach upwards of a 98% drawdown, then by all means.. hold and enjoy the show. If you like profits and nice things in life though, and want to avoid that emotional torment, then you should exit a large portion of your position.
For example, in the last cycle, Vechain dropped from 28 cents to slightly over 1 cent! Drops are similar across the board with most other altcoins.
This is early stage technology, and the volatility is insane.
With volatility comes opportunity though, and if you were able to time your exit and re-entry on Vechain perfectly during the last cycle (highly unlikely), you could end up increasing your position by almost 20x.
Now, I know pulling profits brings its own set of issues (especially if you plan to get back into the market) since it can be difficult to convert large amounts of fiat currency back into crypto due to purchase limits and banking hassles.
For this, you have stablecoins, which brings me to my next warning..
Don’t put everything into 1 stablecoin
If you’re new to this, look into what happened to the Terra Luna project and their UST stablecoin on May 9th, 2022. What was intended to be an algorithmic stablecoin pegged at $1.. is now sitting at 0.01.
There’s no shortage of stablecoin risks, so if you’re going to use them for convenience, then it’s best to diversify.
Luckily there are several options.
Most are pegged to the USD, but there are also ones like PAXG, which is pegged to the gold price.
Not financial advice, but if I wanted to remain in the crypto ecosystem for easy re-entry, I would utilize several of these so if one goes down, I don’t lose everything.
In terms of unpegged/unstable crypto assets, I would also prefer to be holding Bitcoin and Ethereum during a bear market as opposed to coins with smaller marketcaps.
Both Bitcoin and Ethereum get absolutely hammered (around a 70% drop), but their bounceback is more reliable, and I’d rather take a 70% hit than 90+% – which is common amongst the others.
Also, when sentiment shifts and a new bull market starts, it’s typically Bitcoin that moves first. It’s the market leader, so if you’re heavily weighted in Bitcoin, you’ll be well positioned for the initial upmove.
One strategy could be to take profits into a variety of stablecoins, then use those to scale in and accumulate Bitcoin at various price levels during the bear market. It’s very difficult to identify the exact bottom, so dollar cost averaging and gradually building your position NEAR the lows is more realistic.
Conclusion
Just use common sense and don’t get caught up in the hype. Remember that the reason why you’re accumulating digital assets is likely so you can use your profits to acquire physical ones.
Owning land, having a roof over your head, a vehicle to drive and travelling the world will bring you more enjoyment than having a USB stick you can use to access invisible tokens.
Now, don’t get me wrong..
I fully understand that blockchain technology can change the world for the better – particularly in the realm of decentralized finance. I even wrote in-depth articles on those topics..
5 ways blockchain tech can stomp out corruption
But speaking from experience, you don’t want a small fortune to slip out of your hands because you were too greedy to take profits off the table.
