If you’re looking to trade cryptocurrency, then you should be aware that it is very volatile. What might amount to thousands of dollars today might be gone tomorrow. Having said that, it doesn’t mean that it’s hopeless, although fraught with danger. There are strategies you can do to maximize your profits and mitigate your losses.
Whether you’re an experienced trader looking for a new approach or a beginner looking to start navigating the thrilling and challenging world of virtual assets, check out these five tips for cryptocurrency trading.
1. Learn to manage risks
The first mistake inexperienced people commit when investing in cryptocurrency is their lack of risk management strategy. While it sounds technical, it’s actually straightforward: you understand the potential risks of what you’re doing and learn to manage it. In cryptocurrency, this comes in a variety of forms, mostly depending on your goals and strategies. However, one management idea that everyone can agree on is this, “do not risk more than you can afford to lose.”
This is also the reason why people can’t survive wild swings in the cryptocurrency market and they also tend to make decisions based on the fear of missing out. By setting your own thresholds for buying, holding, and selling, you can have better control over your investments.
2. Set up a CRT
The main motivation in cryptocurrency is to turn a profit. To do this, you have to (1) maximize profits and (2) minimize costs and losses. Let’s say you’ve already made the first one. To make more than you already did, and to accelerate how you build your wealth moving forward, try setting up a charitable remainder trust (CRT).
A CRT is a gift of cash or assets to a tax-exempted, irrevocable trust fund. Since you’ll be the donor for this trust, you get to receive an income stream of sorts for a set period of time or for the rest of your life. After the period, a charitable organization of your choice receives the remainder of the fund. From your end, you get to reduce crypto taxes since your cryptocurrency funds and related assets are subjected to a tax deduction based on their value that is projected to go to charity.
Aside from the immediate tax reduction, you can also defer taxes when you gain profit from the assets or coins in the fund. What could’ve gone to taxes can be reinvested, giving you an opportunity to prepare a long-term revenue stream or a viable retirement plan.
3. Diversify your portfolio
Assuming you enjoy the deferred tax from your CRT, you can reinvest it. This is a great opportunity to start diversifying and therefore, reduce your risks. By spreading out your investments across different cryptocurrencies, you get to keep a part of your investment in case something happens. For example, if one currency dips, your investments in other currencies will ensure that you can continue turning profits. If all of them goes to the moon, well and good. However, in the event one crashes, you still have other investments to help you.
Diversification is a recommended risk management strategy, whether it’s about properties, stocks, or virtual assets. However, make sure to maintain due diligence since it might be easy to be carefree, especially if you’re investing your profits that when lost entirely, is still considered breakeven. Accelerate your profit by being mindful of each investment.
4. Play the long game
Usually, people who are in the cryptocurrency trading business to make some quick buck are those who also fall for rug pulls and other scams. Not all currencies shoot to the moon in a day or two. Some of them, including some of the biggest currencies today, took years to get where they are today. Similarly, people who pull out of the industry immediately after turning a profit are not bad, but they lose out on potential earnings in the long run.
By practicing patience and temperance, you can gain a number of benefits. One, you maintain an investment that can continue turning profit for you for the foreseeable future. Also, by staying in the market, you also remain invested in the industry, allowing you to learn of the latest news and even find other opportunities for investment and growth. Lastly, by understanding that cryptocurrency isn’t going away anytime soon, you maintain your position in the market–whether it be a new technology after the NFT or a change in tax laws that will allow you to keep more for yourself.
Although the cryptocurrency market is a lot more volatile and unpredictable compared to the traditional stock market, there are strategies from the latter that can be adapted to the new and rapidly-changing landscape. With the right preparation and mindset, you can definitely make the most out of your cryptocurrency trading.