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Mastering Long-Term Crypto Investments: Essential Tips & Strategies



16 Mar, 2021


In Crypto Currency Trading just like many other markets, time and patience can be your best friends. And just like any other type of financial investment, you need to create a portfolio that goes along with your risk tolerance and financial goals. To do so, you can begin by examining the criteria for constructing your crypto portfolio and then use them to develop a plan for allocating different types of crypto assets

Your personal goals and current situation

  • What’s your income size now, and where can it go in the future?
  • Are you likely to change your job in the future? Is your current job secure?
  • What’s your marital status now? Do you have any children? Where do you see yourself on this front in five years?
  • What’s your investment experience?
  • Do you have any other investments in assets such as equities or real estate? How diversified is your overall portfolio?

These questions may sound routine, and you may already have the answers in your head. But investing long term is a logical process, and actually writing down the most basic elements of your personal goals and characteristics always pays off. When you’ve assessed your own financial situation and goals, you can have a better understanding of how to move forward with your crypto portfolio. Your needs may even determine the means of investment you choose.

For example, if you’re retired and your income depends on your portfolio, long-term cryptocurrency investing may not be suitable for you. You may want to consider a lower-risk, current-income-oriented approach. If you’re young and willing to take the risk in the hope of getting high returns, you may even consider the short-term trading strategies.

To sum it up, build your portfolio around your needs depending on the following variables: • Your current income • Your age • The size of your family • Your risk preferences

Your portfolio’s objectives

Assessing your personal goals and life situation brings you one step closer to creating your own portfolio. When creating a long-term portfolio, you generally want to consider these objectives:

Generating current income: These investments can generate a regular payment, which can be at odds with high capital appreciations.

Preserving capital: This low-risk, conservative investment strategy generates moderate returns.

Growing capital: Focusing on capital growth requires you to increase your risk tolerance and reduce your need for a current-income-based investment strategy.

Reducing taxes: If you’re in a high tax bracket, you may consider a portfolio that generates capital gains. If you’re in a lower tax bracket, you have lower incentive to defer taxes and earn high investment returns, so a portfolio with higher-current-income assets may be suitable for you.

Managing risk: You should always consider the risk-return trade-off in all investment decisions.

They get tied together with your personal goals and other investments. For example, current income and capital preservation are good objectives for someone with a low risk tolerance who has a conservative personality. If you have medium risk tolerance and don’t need to depend on your investment for current income as much, you can select capital growth as your portfolio objective. Last but not least, you should consider your risk-return trade-off in all your investment decisions, whether long term or not.

Creating Long-Term Strategies

Any type of investment can be summed up in four words: Buy low, sell high. But of course no one can get it perfectly right every time. With cryptocurrencies in particular, the market is still testing out new psychological levels, so predicting the highs and lows can be that much more difficult.

Observing psychological levels

Besides Bitcoin, many cryptocurrencies are so new that they haven’t even formed a full cycle on the trading charts. But as time goes by, key psychological support and resistance levels have started to develop. We’ve found Fibonacci retracement levels very helpful in identifying key levels even in the newer cryptocurrencies.

The reason psychological levels are already appearing in the crypto market may be that many crypto investors are using traditional technical analysis methods for their cryptocurrency investment strategies. With that, you can expect the crypto crowd psychology to form similar chart patterns to those of other markets, such as equities and the foreign exchange market (forex), in longer time frames like weekly and monthly charts. Crowd psychology is the constant battle between the sellers (the bears) and the buyers (the bulls) in the market that leads to price movements in an asset. Psychological levels are those that the prices have difficulty breaking, due to the strength or weakness of the bears and bulls in the market.

After you identify the psychological levels, you can use them to develop different types of strategies based on your current portfolio, your risk tolerance, and your financial goals. Here are some examples:

  • Buy at a key support level and sell at a key resistance level.
  • Buy at current market price and sell at a key resistance level.
  • Wait for a pullback when the price reaches a key resistance level and buy lower. Then sell at the next key resistance level.
  • Buy at a key support level and hold long term.

Selling when you reach your goal

A cryptocurrency’s price may continue going higher after it reaches a key resistance level. But how long do you wait? Which resistance level do you choose? Does using resistance levels even make sense for your financial goals? One realistic way to approach your investment strategy is to sell when you’ve reached your investment goal. The key here is that you shouldn’t look back and regret your decision after you’ve made the sale, even if the price continues going up after you sell.

Markets may continue to go up after you sell. Don’t let your emotions take over your logical decision to sell. If you need the money and have already achieved your investment goal, you have no reason to regret an early sale. If anything, you can always get back in the market with a brand-new investment strategy.

Considering Limit and Stop-Loss Orders

Cryptocurrency exchanges and brokers alike allow you to use various types of orders to buy and sell altcoins. Most active traders use market orders to buy or sell at the best available price, but long-term investors can use other types of orders such as limit orders and stop-loss orders.

Long-term investors can also use market orders in abnormal circumstances if they need to make a quick investment decision. Market orders are normally filled quickly at a price close to the current market price.

Using market orders can sometimes involve risks, especially in volatile markets such as cryptocurrencies. Sometimes the price of cryptocurrencies drops or skyrockets in a matter of seconds. If you happen to use a market order on those occasions, you may get blindsided by the actual price at which your order is executed. That’s why using a limit order is always safer than using market orders.

Limit orders

A limit order is a type of transaction order that allows you to buy or sell at your preferred price. For example, if the current Bitcoin market price is at $6,434, you can set a buy limit order to buy at $6,000 or even below that level if you think the price has the potential to drop. Then you can set a sell limit order to take profit when you reach your investment goal, say at $7,000.

Always double-check your limit orders before putting them through. Make sure your buy limit order isn’t above the current market price and your sell limit order isn’t below the current market price. Traditional brokers often send you a warning if you make a mistake in setting limit orders, but most crypto exchanges don’t offer such courtesies. Just like in other markets, cryptocurrency limit orders have different options for how long they stay in effect. The most common types are good til canceled and fill-or-kill:

A good til canceled (GTC) order normally stays in effect for six months. If it’s not executed within that time frame, your broker/exchange may cancel it. If you still want to keep the position in effect, you may need to renew it after six months.

A fill-or-kill order is canceled if it’s not immediately executed. Therefore, it may be a better fit for short-term trading strategies.

Other types of limit orders offered by your trading platform may include good till time (your order stays in effect until a specific time you select) and immediate or cancel (your order is canceled if it’s not immediately fulfilled by your broker). You can set more than one limit order for your cryptocurrencies. You can also choose to buy fractions of a cryptocurrency, especially when those like Bitcoin are so expensive.

Stop-loss orders

You can use stop-loss orders to limit the downside loss exposure of your crypto investment. Stop-losses are basically a form of limit orders, where you ask your broker to close your position and take losses at a specific price. Just like limit orders, stop-loss orders have different types like good till canceled.

Volatile markets such as cryptocurrencies normally bounce back up from the lows as rapidly as they fall. That’s why by using a stop-loss order, you may end up getting out of your position prematurely and miss out on potential gains. If you’re looking to use a stop-loss order, you must analyze the market carefully and choose an appropriate level for your stop-loss.

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