Trading and investing may sound the same, but in reality, they are as different as day and night.
Trading refers to a short-term method of trying to profit from buying and selling of bitcoins while investing refers to a long-term strategy where a buyer will hold on to their bitcoins for a long time and ride out any dips in the market price.
The Bitcoin trader thrives on the exciting volatility of bitcoins. They’ll try to time the market and buy bitcoins when the price dips and then they’ll wait for the price to go up before they sell their bitcoins.
Trading is a high-risk game because you’re betting for the price to go up or down. Not everyone can trade, however. The most successful traders are those who have nerves of steel and can detach their emotions from their trades.
Traders don’t get scared of dips in the price because they are optimistic it’s going to go up again, sooner or later. They are looking to maximize their profits, too, so they’ll mostly invest a lump sum and buy at the lowest price they can possibly go for, and then they’ll wait until the price is high enough for them to make significant profit.
Trading takes a lot of guts. It takes a lot of thought and analysis. If you’re an emotional type of person who gets physically sick with every dip in bitcoin price, then you’re better off investing, and not trading, in bitcoins.
Bitcoin investors are different from traders. They’re in it for the long haul. They’re not looking to take advantage of short-term fluctuations in the exchange rate. If the price goes down by hundreds or thousands of dollars, they’re probably going to get worried, but they’re not going to pull out their investment because they’ve already decided they’re going to hold it for the next 10, 20 or 30 years.
A wise investor will practice the dollar cost averaging method to manage risk. This means whether the price goes up or down, they’re going to buy bitcoins and hold them.
This strategy is perfect for long-term investments as you’re essentially spreading the risk. Though profits may not be as significant as short-term trading, the bitcoin investor probably sleeps easier at night as they’re not worried how the charts are going to look like tomorrow or the day after.
Investing in highly volatile bitcoins and other cryptocurrencies is risky business. These currencies are all electronic or virtual in nature, and thus have no physical presence. They don’t even have intrinsic value. However, no one can deny that right now these cryptocurrencies are extremely valuable and those who invested in the early days, and held on to their investments, are living the high life now as multi-millionaires, and even billionaires!
If you want to be like these wise investors sometime in the future, then follow these 4 investing strategies to increase your chances for success.
- Prepare For Volatility
It’s basically a given for cryptocurrencies that they are going to be extremely volatile. One minute the price is sitting at 5 digits, and the next it’s at 4 or even 3 digits!
It’s absolutely unpredictable, and if you don’t take its volatility seriously, you could get in a lot of trouble. You could panic and sell off your crypto so you can minimize your loss.
However, if you’ve braced yourself for scenarios like this, then you’d probably just shut down your computer, or turn off your TV, and lie down and sleep off your doubts.
Tomorrow is a different day, the price could go back up, and all will be fine with the world. Being prepared for volatility is tough, but it’s definitely doable.
- Proceed With Caution
Do your research before you start investing in bitcoins and other cryptocurrencies. When you’re dealing with hard-earned money, you don’t want to lose everything in one day. You’re investing to make a profit sometime in the future. Don’t go all in without studying what you’re putting your money into.
- Diversify Your Portfolio
Don’t put all your eggs in one basket, so to speak. Don’t just invest in bitcoins. If possible, invest in other cryptocurrencies as well as traditional assets like stocks, bonds, and mutual funds. At least if bitcoin prices drop, then you’re not going to be totally in the red. Your other investments will help keep you afloat.
- Store Your Virtual Coins In Cold Wallets
Investing is a long-term game, and it is not advisable to keep your cryptocurrencies in online wallets such as your exchange’s wallet, or even your mobile app wallet.
Keep your private keys in cold wallets such as paper or hardware wallets since these aren’t connected to the Internet. You can keep small amounts in your online wallets, but the bulk of your investments should be offline.