Here are some tips for newcomers entering the altcoin market. That is, tips for beginners buying cryptocurrencies that aren’t Bitcoin.
You’ll want to tread lightly when you first start investing in or trading altcoins, as there is a ton of room to go wrong.
- Consider not going “all-in” on crypto. Average in over time with an investment you can afford to lose and/or utilize small bids and stops (i.e. practice risk management). Not every trader or investor has the same style or goals, but for everyone the same logic applies: if you go too hard too fast it can mess with your psychology, mess with your bankroll, and mess up any strategy you have on paper.
- Pick a strategy and stick with it. Don’t trade impulsively and emotionally.
- Look at coinmarketcap.com and stick to the top 10, 20, or 50 as a rule of thumb. If a coin isn’t in the top 50 or so (top 50 by market cap AKA “the top 50”), be very skeptical of buying it as a newcomer to the crypto space. The time tested top coins with the highest market caps and volume tend to be better at staying toward the top. Focusing your attention on the top 20 or so coins means you’ll greatly increase your chances of picking the right coin, top 10, even more so. If you want to set aside some extra for ICOs and moonshots, great, but they generally carry more risk.
- You’ll need to use a crypto-to-crypto exchange. Bittrex, Kraken, and Binance are valid choices (although they aren’t the only ones). Same is true for Changelly and Shapeshift. Coinbase/Coinbase Pro can be used to transfer a fiat currency (specifically the US Dollar, the Pound, or the Euro) to Bitcoin, Bitcoin Cash Litecoin, Ethereum, or Ethereum Ethereum Classic, then those can be moved to an exchange (even if the exchange you are moving them to doesn’t deal in fiat currency).
- Unless you are going to keep your altcoins on an exchange, you’ll need to download the official wallets or a trusted third party wallet to hold your altcoins. Keeping a small amount on a major exchange for a short period of time is generally fine. However, long term storage should not be done on an exchange.
- Use two-factor and strong passwords to secure accounts. Altcoin markets can be dangerous to trade, but the biggest risk is that they are “hot targets.” Make sure to use proper security.
- Consider averaging into a position (especially “on the dips” when you can). As noted above, going all-in is usually the wrong move. If you want to build a long position, consider averaging in over a long time (like averaging in over a full year). When alts are hot, they can get really hot, going up 400% – 500% in a short period of time. What goes up often comes down. If you go all-in at the top, you could end up having to wait months (if not forever) for your investment to pay off. If you buy an average price of a coin over time, you limit this risk. It is psychologically difficult to wait months and watch a coin decrease in value by 80%+, you should go into alt investing knowing that these sorts of declines can occur. Averaging into a position will help to avoid going all-in at a high, and thus will help you avoid this sort of worst case.
- If you are going short in an alt, consider setting stops. If you are going long, consider “holding.” Also noted above, those focusing on trading and not long term investing should really consider using stops. You don’t want to try to be smarter than the market, pick a stop price below a resistance level and let it hit if you mistime a trade. You can always “ladder” stops. Learn about “dips, stops, averaging, and holding.”
- Do your own research. Not every coin on the top 20 is created equally. You have to look at charts, at the order books, and at the mechanics of the coin. If all look good, then the coin is probably a good bet. About 1/2 the coins that were in the top 10 in 2015 when we started the site are still in the top 20 or so, the other half aren’t (here in December 2017). Of the half still there, all have increased dramatically in value. Of those that aren’t, most have increased a little or stagnated. Of the coins that were in the top 10 in the summer 2017, all have increased in value in terms of fiat (but not against Bitcoin’s price).
- Learn some basic TA. If you always buy BTC when it is above its 200 EMA and only trade when it is under, you will always be profitable (you will also have long boring stretches where you do nothing). You can’t understand tricks like that if you don’t know TA. TA is key in Bitcoin, but it is really essentially in the alt market.
- Zoom out on charts so you know what you are up against. Make sure to consider the full history of price action of a coin. Some have gone up a ton recently or in the long term. You should have a realistic view about how a coin has preformed in the past and how good/bad it might get in the future.
- Learn to compare coins both to Bitcoin’s price and to fiat. If a coin is going up in fiat, that is good. If a coin is going up slowly in fiat, Bitcoin might be outpacing it.
- Don’t ignore Bitcoin. Don’t let Bitcoin’s price tag scare you. The market tends to sink or swim with Bitcoin, and you can buy a fraction of it. Anyone holding alts will likely also want to hold Bitcoin.
- You can trade Bitcoin to alts. If you buy Bitcoin and alts go down, you can buy more alts with your Bitcoin. If Bitcoin goes down and alts go up, you can buy more Bitcoin with your alts. Learn about “trading pairs.”
- Try not to sell low (or convert to Bitcoin low). If you have been riding a top alt into the ground it can be tempting to sell low. That sometimes is the right move, if you are going to shift that money to another coin. However, more often than not holding is a better strategy. This is only true for top alts. Ones further down the list can go down and never recover, you don’t want to be “holding bags” on coins that won’t ever recover. So don’t sell your Ether at a loss unless you are day trading and using stops as a rule of thumb, but do feel free to bail on your 1000th-by-market-cap coin if you think it won’t come back.
- At the end of the day, you want to feel good about the coin you are holding. When you hold top alts that people are historically stoked on, it can feel pretty good. There are communities to commiserate with when things aren’t going well, and there are communities to vibe with when things are going great. If you start going too far down the list you could find yourself in a market without buyers or sellers and without friends to commiserate and gloat with. It just isn’t as fun.
- Never trust one source. Some people will tell you Bitconnect is great, others will try to get you to join an ICO, others will tell you some coin way down the list is the next Bitcoin. Sometimes they are right, sometimes they are pumping a coin or got way too stoked over a single reddit thread. You need to verify your picks across the internet and do some research. There are pros and cons to every coin.
- If a coin is being hyped, it probably means the run is half way or almost completely over. In crypto coins go on runs and then pull back as a rule of thumb. They almost never just go up and stay there. If everyone online is saying “this coin is the next big deal” and the price has already gone up a lot, there is a good chance it doesn’t have much more run left in it. If you are buying long, this is a perfect time to set a lower buy order or start averaging in. Don’t risk the chance of going all-in at the top!
- Consider holding. It can be tempting to sell in bad times and good times. But you’ll never make it to 2020 with a bunch of cryptos if you sell them all. When you do want to take profits, try taking them to another coin, in increments, and with the goal of keeping some of any coin you invest in. Nothing feels worse than picking a great coin, but selling it before it really had room to preform!
- You are up against bots, whales, and pump and dump groups. About half of the traders in a given market are normal people. The other portion are bots (APIs designed to preform specific buy/sell strategies), pump and dump groups (who coordinate strategies to pump coins, often using bots, in private chat rooms), and whales (single investors with really deep pockets). White-hat bots are good, and you can get yourself one. Natural growth of coins is good too, and sometimes whales are a big part of that (for example, the whale who put a million dollar buy wall up on your favorite coin likely helped you protect your investment… and their’s). However, shady campaigns to pump a coin that is hot are common and giant sell walls that keep the price of a coin down are common too. You need to watch out for buying into a coin at a high due to it being pumped and you need to watch out for coins that are kept low artificially (don’t sell these off, buy more as a rule of thumb). No coin escapes the pumpers, less savory bots, and whales… so the top ten will sometimes fall victim. On the plus, the more natural volume, the harder the coin is to manipulate. This is another reason to buy the coins with the highest market cap and highest volume.
- Think in terms of fiat value and percentages when buying. You don’t always need to think I need 1 Bitcoin and 1 Ethereum. You can simply think of it as: I want $100 worth of each coin in the top 10, whatever fraction or multiple of a given coin that buys me aside. You’ll end up with more XRP than BTC, but whatever, point is you’ll have equal fiat amounts of each coin.
- Don’t feel like you have to trade. You never have to make a trade. One can sometimes feel like they have to take profits or have to make up for a loss, or they may get bored and get itchy fingers, but often doing nothing is the best move. Sometimes doing nothing for years is the best move, for example from 2015 to 2017 the best move with BTC was usually doing nothing.
- Most people are bad traders. In general, most traders are bad traders (even if it is because many are just learning). Go into crypto trading assuming you are a bad trader. If you only trade small amounts, use stops, and avoid taking losing trades when you know you want to stay in a coin, you’ll diminish the impact of being a bad trader.
- If coins are making you crazy, and you picked well (top alts, averaged in, still down anyway)… stick them in a wallet and wait it out… I.e. even though it can be really rough, you can just HODL. In almost any point in crypto history this strategy worked well. I’ve seen people lose big “taking gains,” “cutting losses,” and “chasing gains.” I’ve rarely seen a person lose money over time holding a top alt (unless they bought at the height of a bubble). HODLing isn’t likely to lead to ruin unless crypto enters a permanent bear market (which, could happen). With that said, if you bought at the top of a bubble you have to embrace the reality that you may never get back to that USD or BTC value you bought at… that is ok though, as remember, you can do things like “average down” your price after the coin has fallen considerably (like 80% – 90%+ for example).
To put that all together:
Average into the top coins that you feel good about and/or use stops. Always practice risk management and try to use small bids. Verify and do research on coins. Aim to buy the dips. Aim to get more of the coins you are invested in. If you mess up, try holding onto the coins and waiting it out (rather than “selling low”).
The result should be that you have a spread of the top alts over time (and that the amount you own of each coin is growing). This should result in good returns (especially when a bull market rolls around and BTC or alts start doing well). To accomplish the aforementioned, you must be willing to hold at least part of your investment through both the good and bad times.
The bad times can get really bad, but of course, that is why I say “don’t go all-in, average in instead.”