Investing is an effective way of putting your money to work. However, investing in anything doesn’t guarantee that your money will work for you. Therefore, it is important to do the due diligence before putting your money in it. There are many investment instruments like stocks, bonds, forex, ETFs, and cryptocurrencies out there. These come along with their unique levels of volatility, liquidity, and risk-return. As such, a well-thought-out investment strategy should consider these characteristics, and it should create a road map to get what you want, when you want it. So, how do you build an investment strategy?
Defining your investment goals
It’s always best to start off by asking yourself a few questions and defining your goals. What am I trying to achieve by investing? Is it short-term gains or long-term profits? When it comes to investing in the crypto market, it is very volatile, which means the risk is high and the reward is also high. Ask yourself whether you are willing to take that big risk, which may lead to big rewards. Sometimes you might be willing to take a higher risk for short-term gains, however, it might not be an option for the long term. If that is the case, then how do you diversify your portfolio? What coins/tokens do you apportion for short-term gains and long-term gains?
Research and selection of the right cryptocurrencies
“An investment in knowledge pays the best interest.” — Benjamin Franklin. As Franklin’s famous line goes, it is very important to get an inside-out understanding of what you are getting into. When selecting a cryptocurrency to invest in, you have to consider the market capitalization, trading volume, technology, and community support. Large coins like Bitcoin and Ethereum are less volatile compared to other tokens and may serve as a good long-term investment vehicle. However, memecoins are very volatile and may be suitable for short-term gains.
Diversification in a cryptocurrency portfolio
Diversifying your portfolio minimizes the risk across your portfolio. This helps you to be in a better position to take a loss, if and when it occurs. When one of the coins or tokens is making a loss, you can make up for that loss from a coin or token that is performing well. For instance, you could invest in categories such as blue-chip cryptocurrencies, DeFi tokens, and utility tokens. However, over-diversification of your portfolio will be time-consuming and hard to keep track of, and this might lead to reduced potential returns.
Know the market trends and news
The crypto market is very sensitive to community sentiments, regulatory changes, geopolitical situations, tariffs, and fed interest rates. As such, you’ve got to have the finger on the pulse of the crypto news. You might want to follow Telegram communities, Reddit, and Twitter to be informed about what is happening around. With more knowledge, you will be able to make educated decisions that could help evade losses or make the most of an opportunity arising on the horizon.
Timely reviewing and adjusting your strategy
Your strategy should not be something that you set once and forget. Since the crypto market dynamics keep changing constantly, the strategy that worked best for you last month or year might not work out now. Sometimes, regulation changes, geopolitical conditions, and new tariffs could have dismantled the market dynamics. Therefore, it is important to constantly review your strategy, check whether your strategy is aligning with your goals, and if necessary, rebalance your portfolio.
Practicing patience and discipline
No matter how much time you invest in building a strategy, it will go to waste if you don’t follow it with discipline. We all know the phrase, “haste makes waste,” and when dealing with crypto, it is very important to be patient. The less emotional attachment and the more involvement of data-based decisions, the better the chances of making profits.
