Every financial market experiences volatility at some point or another, and the cryptocurrency sector is no different.
It’s common to find that certain groups, like traders, thrive off volatility while others avoid it by all means possible – and no side’s wrong or right.
At the end of the day, it all comes down to preference, but for those looking for safer ways to invest in cryptocurrencies while being mindful of market volatility, here are three low-risk strategies.
Planning to Succeed
Investing is a journey, and like all travels in life, planning usually leads to a smoother experience – the same holds true regarding personal investing.
Whichever strategy you choose to implement, determining your entry and exit plan for an asset and what actions you may (or may not take) should your plan go sideways is crucial to your success.
If you adhere to this plan, it can be a tremendous asset or a voice of reason, which could save you substantial capital as one is less prone to make irrational moves (panic sell) when things aren’t headed in the direction you may want have thought.
Diversifying your portfolio across multiple positions (even sectors) can be a great strategy that, in a way, protects your capital as well as your emotions should one stock (or sector) that you are invested in experience a downturn.
For example, let’s say that you chose to invest in the precious metals sector as well as the food industry. As the markets have experienced before, if there were to be a recall on specific products or negative news in the agriculture markets, this could very well drive that portion of your portfolio up.
On the other hand, your precious metals investments may go unscathed, helping to hold your portfolio up and not making an impact as harsh on your emotionally.
As the examples show, not all markets move together congruently. The same example can be applied to an investment in your portfolio that is running to the upside while another is lagging. The takeaway – the balance is good.
Automating Your Trades
Another way to remove emotions from investing is to use an automated crypto trading bot. These operate by following commands or inputs given to them by the investor.
While traders widely use them, these bots are usually customizable to the extent that even reserved investors can benefit from their technology.
To get the full use out of such programs, it is best to establish trade parameters by applying technical indicators, which again eliminates emotions from the equation. It executes trades at lightning speeds, so “if” a sudden price spike occurs, instead of being stuck in a losing position or falling victim to panic selling, the bot will automatically exit the position for you at the pre-determined price.
There are also tools within this type of platform itself that traders use to mitigate risks, such as setting a stop loss. A stop loss is a rule that sells said position automatically, on your behalf, in an attempt to either lock in profits or quickly exit a losing trade. The goal of the stop loss is to efficiently manage your capital or “bankroll.”
For those who may not have extensive knowledge in the technical analysis area, there are always other options, such as the ability to copy the actual trades of more advanced investors – also known as copy trading.
The Game of Patience
Investing in itself is truly a game of patience, but another low-risk cryptocurrency investing strategy is to wait it out.
As previously mentioned, every market goes through bull and bear run cycles (when the market is rising and declining). While it can be enticing to buy when the market is rocketing upward, the saying “what goes up must come down” applies to investing as well.
This may be one of the toughest strategies to follow as it can sometimes take weeks, months, and even years for prices to decrease.
While timing the bottom is rarely achievable, just remember the quote by the famous investor Warren Buffet “When others are greedy, be fearful – and when others are fearful, be greedy”.
What’s Right for You
Unless you’re consulting with a financial advisor, no one can truthfully (and legally) tell you what’s best for you, as only you would know this.
However, following the first step, making a plan is perhaps one of the wisest actions you can take on your investment journey.
Due diligence will help you create a plan, as well as determine which investment strategy is right for you – don’t shy away from research.