Investing in cryptocurrency is a high-risk financial transaction. The reason is the volatility and unpredictability of digital assets. Being dependent on information noise, Bitcoin and altcoins easily change course, leaving unlucky traders with losses.
In the digital money market, sudden changes in quotes are a common occurrence. Let's say that on November 16, 2021, the Bitcoin (BTC) rate suddenly dropped by 10%. The same unexpected collapse of the main cryptocurrency happened before. For example, on August 7, 2021, the value of an asset decreased by 20% per day.
Despite this, the army of investors is growing almost hourly, confirming the thesis that cryptocurrencies are not a scam or a toy for a narrow circle of insiders, but an effective financial product that heralds the arrival of a new order of things.
What strategy should you choose to make your cryptocurrency investments safe and effective with only basic money handling skills?
Choose conservative assets
If we consider investing in cryptocurrency as a way to save funds without chasing profit, then in this case it is worth taking a closer look at more conservative instruments. This:
- landings - temporary transfer of cryptocurrency at interest under a fixed or perpetual contract;
- staking - storing your own tokens using the Proof of Stake (PoS) algorithm to maintain the functionality of the network;
- crypto funds - delegation of rights to tokens to professional managers, similar to conventional exchange-traded funds.
These investment formats imply passive and relatively small income, in comparison with assets, for example, from the niche of decentralized finance (DeFi), which currently belong to the category of the most profitable and, at the same time, very risky.
How McAfee built his portfolio
John McAfee, who became famous for his infamous Bitcoin forecast, said that his portfolio includes the following coins: EOS, DOCADEMIC, SETHER, Safex, BEZOP. From the standpoint of short-term investment, these cryptocurrencies will result in losses in 2022, but we should not forget that in 2022, new large blockchain projects brought investors 136 thousand percent profit! Boston University specialists note that the average profit for the sum of all new cryptocoins is 82%.
As for Bitcoin, McAfee did not say how much money he holds in BTC, but there is no doubt that he has enough Bitcoins, since the crypto enthusiast has completely abandoned the use of fiat currency and pays exclusively with digital assets, among which Bitcoin is the most popular means of payment.
Best Investment Scheme for Beginners
For those who are far from understanding how to manage finances, investing more than 5% of your capital in cryptocurrencies is not worth it, especially when it comes to high-risk assets.
Given the endless volatility, there is a high probability of entering the market at the peak or falling for scammers. The optimal, proven option is to determine a safe amount for investing in cryptocurrency and regularly invest in Bitcoin, Ethereum, other top altcoins and shares of blockchain-related companies in equal parts.
Such tactics provide good returns over the long term and allow you to invest quickly, without deep immersion into the topic.
Is it possible to trade on news?
In Forex, strategies that involve working on the market’s reaction to important news are still in use. The release of the NFP report, speeches by the heads of central banks, Trump's tweets and other factors sometimes cause strong jerks in the chart. You can earn money on them in just a couple of minutes.
On the chart of BTCUSD and a number of other cryptocurrencies there are also moments when in 1-2 candles the rate changes by 5-10%. The trader is tempted to try to build a strategy that allows him to take such movements.
It is impossible to do this. If Forex has an economic calendar that indicates the release dates of important news, then in the case of crypto there is no analogue. Yes, there are several cryptocurrency calendars that give an idea of possible upcoming events in the crypto industry, but this is not the same as allowing you to trade successfully. Basically, the impact of news on the exchange rate is registered after a sharp movement.
What affects the cryptocurrency rate?
The crypto rate is affected by:
- decisions related to the development of legislation in the cryptosphere. The news about the legalization of Bitcoin as a means of payment in Japan at one time provided support for the crypt;
- prohibition/permission of mining in certain countries;
- news related to possible forks;
- news about hacking of large exchanges;
- entry into the market of “whales” - owners of large capital in crypto. If such an investor simply wants to sell a large amount of cryptocurrency, he will collapse the rate. The capitalization of the cryptocurrency market still cannot be compared with the same Forex, so individuals can influence the rate.
You will have to track all this news yourself. Some of the news comes as a surprise to the market (exchange hacks, whales entering the market, banning mining/cryptocurrency in general in certain countries). This makes news trading almost impossible.
Buying cryptocurrency on trading platforms
The most accessible and safest, and therefore popular among most investors, way to buy cryptocurrency is crypto exchanges.
To do this, you do not need knowledge of fork technology or the halving mechanism; it is enough to have your passport at hand, the required amount on the card/wallet of a popular payment system and half an hour of free time. Even a schoolboy can do it. The algorithm by which transactions take place on crypto exchanges is easy to understand:
- one participant places a sell order, the other creates a request to buy a coin;
- both applications go into the orderbook - a book of orders where data on all offers is stored;
- if the conditions specified in the orders of the seller and buyer coincide, the system automatically carries out the transaction and the funds are credited to the accounts of the exchange’s clients.
A typical situation: the interests of the parties agree on the price, but do not coincide in the number of coins - the seller paid more/less than the buyer needed. The solution is simple:
- for the seller - unsold coins remain in the order book and await a new application;
- for the buyer - the deficiency is compensated by a share from another sell order.
The conditions of each transaction are unique and the only incentive for the transaction is the intersection of the current price interests of the participants. This is how absolutely all cryptocurrency exchanges work. That is why the price of Bitcoin and altcoins that you see in the news and on thematic information portals is not the actual cost of the coins, but, as a rule, the average cost calculated based on data from several exchanges.
Each cryptocurrency trading platform offers its own coin price, reflecting the current interests of its clients.
Theoretically, you can even make money on this by buying coins where it’s cheaper and selling where it’s more expensive. However, taking into account the commissions that accompany each transaction, this option is more suitable for experienced investors who have thoroughly studied the intricacies of payment protocols.
Heiken Trader Strategy
Another precise strategy for trading cryptocurrencies for the medium-term market. Even a beginner can understand the signals and enter into transactions using the “Heiken Trader” trading system.
You can download the indicators and strategy template.
Work schedule:
from H1 and above.
List of indicators used:
- Heiken Ashi smoothed (2, 6, 3, 2);
- Trend Arrows (15, 1);
- Trend Lord (default settings).
How to trade?
In order to conclude transactions on BUY
, you need to wait for the following conditions to be met on the price chart:
- Heiken Ashi bars are formed in blue.
- The arrows of the Trend Arrows indicator are green.
- Trend Lord shows a blue bar.
In order to conclude transactions on SELL
, you need to wait for the following conditions to be met on the price chart:
- Heiken Ashi bars are formed in red.
- The arrows of the Trend Arrows indicator are red.
- Trend Lord shows a red bar.
How to close positions?
We will limit losses, that is, set Stop Loss at the level of 30 points from the entry point. As for the support of an open transaction, Take Profit can be achieved at the discretion of the trader. You can take profits by changing the color of the Trend Arrows. You can also use a fixed profit value, say 50-100 points, as a filter for exiting the market. In flat conditions, this strategy for trading cryptocurrencies will give false signals. Therefore, we recommend entering the market in the direction of the global trend.
About storage
Purchased coins need to be stored somewhere. Regardless of how much you trust a particular exchange, it is better not to keep cryptocurrency in internal accounts unless necessary. There are plenty of cases when sites suddenly stopped working and their owners disappeared with their clients’ money.
The safest type of cryptocurrency storage is a cold (hardware) wallet - a physical external device connected to the network only for the duration of transactions.
What's the result? Buying cryptocurrency on an exchange is the easiest and safest way to become a digital investor. You register on the site, go through verification, look for an asset with an acceptable price and buy. The whole process will take 20-30 minutes. The functionality of the platforms is designed for ordinary users, but contains a wide range of trading tools and sufficient channels for depositing/withdrawing funds.
The disadvantages of cryptocurrency exchanges include not always adequate commissions, lack of sufficient security guarantees and inflated prices by sellers, due to which buyers have to wait too long for the return on the transaction.
Strategy "CCI, Dema and RSX"
Another trending strategy for profitable cryptocurrency trading. This tactic for concluding deals on the crypto market is suitable not only for beginners, but also for experienced participants. The accuracy of trading signals is quite high, since we will enter in the direction of the trend, and not against it.
You can download a set of indicators and a template.
What is remarkable about its application is that the “CCI, Dema and RSX” strategy can detect the presence of a particular trend. But also filter out the “sideways”.
Work schedule:
H1 and older.
Indicators used:
- RSX (16);
- Dema trend indicator (21 or 14 for chart D1);
- Double CCI (Trend 170, entry 34).
How to trade?
So that we have the opportunity to open a deal in the direction of BUY
, the following conditions must be met on the price chart:
- The yellow and green moving averages crossed the red one from bottom to top.
- The orange line of the Double CCI instrument is above the “0” mark.
- The Double CCI histogram has formed a green bar.
- The RSX crimson line is above the 50 level.
In order for us to have the opportunity to open a transaction in the direction of SELL, the following conditions must be met on the price chart
- The yellow and green moving averages crossed the red one from top to bottom.
- The orange line of the Double CCI instrument is below the “0” mark.
- The Double CCI histogram has formed a red bar.
- The RSX crimson line is below the 50 level.
How to close positions?
You can take profit using Take Profit in different ways: after changing the color of the histogram, or there is a more democratic option - after crossing the moving averages. Remember that Stop Loss here is equal to Take Profit.
What is mining
Mining is the search for a certain number in a data array.
This task is not abstract, but is performed to confirm internal transactions of the system. Several tasks are combined into blocks. Decryption of information in such blocks—blockchain—is carried out by selecting combinations. Hence the system's need for endless computing power. The miner alone cannot cope with the search for the number; there are not enough hardware resources. The problem is solved by combining local systems into mining pools - servers that distribute the computing load between participants.
For complete decryption of a data block, all miners receive a reward commensurate with the effort expended. The more powerful the equipment, the more cryptocurrency gets into the wallet.
The system for mining and distribution of rewards is absolutely transparent - information on transactions is available to all participants and can be checked at any time.
Express summary
- keep in mind that this is a high-risk asset;
- plan it as a long-term investment (at least for 10 years);
- Never be fooled by hot news in the format “only this cryptocurrency and only now!” — remember about ICOs and how you can easily inflate the hype around a specific project when it is beneficial to its founders.
I recommend not betting on cryptocurrencies because the level of risk is too high for beginners. It is better to evaluate the opportunities that can be obtained with stocks and bonds.
Advantages and disadvantages
Any investment product has strengths and weaknesses. Before you start mining, you should soberly assess the potential and risks of the enterprise.
pros
- Despite the volatility of the digital money market, the popularity and with it the capitalization of cryptocurrencies is steadily growing.
- The miner is not tied to one cryptocurrency and decides for himself what and when is profitable to mine.
- Relatively short payback period (from 6 months to a year) of investments. Most real, rather than theoretical, business schemes pay off much longer.
Minuses
- The threshold for entry into mining is quite high: equipment, premises and peripheral systems require money and experience.
- Lack of a clear legislative framework and regulations regulating production from the state.
- Mining is an energy-intensive process. Its efficiency is highly dependent on the cost of electricity in the area where the equipment is located.
To make money from mining, you need to understand it not at the level of popular advertising myths, but much deeper. Let's take, for example, promises of specific amounts of earnings with which special software manufacturers lure miners.
Your current balance, collected from Bitcoin or Ether using their programs, is a convention. First, it needs to be recalculated at the current exchange rate into rubles or dollars - this is minus the percentage. Then, by transferring that money to fiat, you lose up to 10% in fees. To this it is necessary to add the real exchange rate of your cryptocurrency and delays in withdrawal, which are fraught with even greater losses due to changes in quotes.
In the end, the 10 thousand rubles that the software manufacturer promised you will turn into 9 after conversion, 8 will come to the card, and after paying for electricity there will be 6 left. And such nuances are more than enough.
Conclusion: mining as an investment format is quite viable. However, if you are determined to make real money, you should seriously study this niche and carefully weigh your options.
If after analyzing the topic the risks remain acceptable and the earning potential is high - mine. The main thing, don’t forget, good money doesn’t come right away.
Swing trading
Swing trading (swing trading from the English swing - swing, fluctuations) - benefiting from strong price movements, ignoring short-term fluctuations in the price of an asset (the strategy is based on technical analysis).
