Educational guides

Crypto Investment Strategies For Long-Term Success

Investing in virtual currencies is certainly not the first career path you had in mind when you were younger. Not only is it very risky, but it can also be quite stressful if you are just starting out.

Yet, if you are reading this, you probably know that many people managed to flip a few hundred bucks into millions of dollars, using carefully structured crypto investment strategies. 

As such, you have decided to look into resources that can help you learn how to trade crypto effectively while minimizing the risk involved. Getting a better overview of all the different ways you can invest in crypto can definitely help you earn serious profits.

Well, you’re in the right place! In this guide, we will break down all the different crypto investment strategies and give you some practical advice to help you get started.

Understanding crypto investment strategies

crypto investment strategies

If you are new to crypto investing, the first thing you need to understand is that trading is not simply the process of buying and selling cryptocurrency. There are many different factors you need to keep in mind when building your strategy. 

These factors can generally be grouped and labeled as “market sentiment” and “technical analysis”. However, the more you practice your strategy, the more you will realize how these two factors interrelate and go deeper.

But, first things first. There are 3 main methods of investing in cryptocurrency, and they are mostly related to your level of patience and risk tolerance.

Swing trading

Swing trading is the only investment strategy that can quickly turn into a full-time job. The process entails opening multiple trades per day and using historical data and technical analysis to guess upcoming trends. In short, traders open small positions for a short amount of time, in hopes of making a relatively small amount of profit.

This strategy “took off” as soon as leverage trading was introduced in the cryptocurrency markets. Several exchanges started offering this trading functionality, allowing experienced investors to make more profit with smaller changes in price. 

For example, one person may see a clear pattern in a particular chart on the BTC/ETH trading pair, indicating that the price will go up. Based on that, they will buy ETH using BTC (with or without leverage) and close the trade as soon as the target % of profit is achieved. 

As a result, in a very short amount of time, the trader will increase his BTC position.

Overall, swing trading is a great strategy to implement during bear markets, where trading is almost always more profitable than HODLing. If done correctly, it can help you multiply your holdings over a short amount of time. 

That being said, only a tiny fraction of traders are actually profitable, and you should always educate yourself before starting out.

Position trading

This investment strategy is more long-term oriented. It involves taking a certain position for weeks or months at a time, while closely observing the market sentiment and long-term trendlines.

As opposed to Swing trading, Position trading often yields a higher % of profit, with less risk involved. However, there are two things users need to consider:

  • It may take a significant amount of time to see profits. This method does not entail intra-day trades or cashing out at local highs. 
  • Users need to closely observe the market sentiment of particular cryptocurrencies, in order to find clear opportunities to make a profit. This can often be time-consuming.
  • Aside from that, those who choose to trade in this particular way need to understand that, in the short term, (severe) losses may occur. At points like that, the trader should not act impulsive, as it can cost them the value fo their portfolio

Historically speaking, position traders can also be seen as the “brave” version of Holders, which put logic over emotion. These are the investors that make 2 or 3 trades per year, using larger amounts of money. These are also the people that will enter a trade when risk is at an all-time low.

To give an example of position trading, a person who was patiently sitting at the sidelines holding stablecoins for months on end would see great opportunity entering Bitcoin right after the COVID19-induced market crash. 

That person would buy right after the crash and sell as soon as the price has fully recovered. Within 2-3 weeks, this one calculated trade could double their money.

Hodling

From all the crypto investment strategies, this is by far the most popular one. A “hodler” will essentially purchase cryptocurrency and hold onto it for a long amount of time (longer than position traders). 

These investors are not only in the game for short-term profits but also because they genuinely believe in a particular project. For some cryptocurrencies, refusing to sell for a long amount of time can be a key factor for the coin’s increase in price.

This became increasingly more evident with the introduction of staking coins, such as Tezos, where users locked away more than 70% of the total supply. This, in turn, increased the price of the coins in circulation.

To learn more about this crypto investment strategy, check this post.

How to decide upon your strategy

cryptocurrency investment methods

Now that you are aware of all the different crypto investment strategies, it might be best to audit yourself. Doing so will help you understand where your strengths lie and help you choose the method that works best.

Here are a few questions you should ask yourself when choosing your strategy:

How much money can I invest?

If you are able to chuck a large amount of money in one initial purchase, then it might be best to hold onto your coins or take a few position trades. If you can only invest a small amount of money, swing trading may help you increase the value of your portfolio in order to have more options later. You can also HODL using a small number of funds and buy on regular time intervals using DCA.

How tolerant am I to risk (and stress)?

This directly relates to the amount of money you choose to invest. Remember, no matter what everyone tells you, crypto trades involve gambling and speculation. As such, you need to decide whether you want to follow a “high-risk high-reward” strategy or take a more conservative approach.

How much time am I able to invest in this?

When first starting out, you might think that setting stop losses and creating some limit orders will make trading a 15-minute-per-day kind of hobby. That is not true. Not even if you are a holder and don’t make any trades. The anxiety linked with investing in high-volatility markets is real and you will check your funds more often than you think. Swing trading may lead to several hours of screentime per day, while position traders and holding will take less (but still significant) time every week.

How long have I been in the game?

In other words, how experienced are you? Many people think that a couple of profitable trades will suddenly turn them in expert traders, and that is exactly why most end up losing their funds. Experience can teach you many valuable things when it comes to market sentiment and charting. If you want to ensure that mistakes are avoided, start by holding onto your coins, while educating yourself. This will help you make better calculated and more confident trades later on.

In short, here is an overview of what we discussed above:

  • Swing traders: emotionally detached from the markets, high-risk tolerance, quick but small profits, mostly trading in altcoin markets.
  • Position traders: patient, make trades using larger amounts of money, understand the market sentiment.
  • Hodlers: Emotionally invested in certain coins, very patient, level-headed, mostly invest in the top cryptocurrencies.

Crypto investment best practices

trading best practises

At this point, you most likely know what type of investor you are. Now that you have decided on the strategy you want to follow, there are a few things you need to keep in mind. These are the practices that will help you increase your odds of success while minimizing the risk.

Diversified portfolio

When it comes to the world of crypto, most veteran investors built a significant amount of wealth by going all-in on one cryptocurrency (most likely BTC or ETH). However, once that milestone was achieved, it was diversification that helped them protect that wealth.

We can’t be sure if Bitcoin or Ethereum will experience any more bull runs like the ones we experienced in the past. But we do know that putting all your eggs in one based has proven to be a very risky strategy in the last 3 years.

Those that want to limit their risk and protect their funds (as much as possible) should consider spreading their funds across different popular cryptocurrencies while maintaining a position in stablecoins as well. 

Only a small fraction of funds should be invested in low-cap altcoins, and those trades should be seen as pure gambles.

Understand the market

We have extensively talked about the methods you can follow to do your own research. When it comes to the market, you need to have a good amount of knowledge in two different areas:

  1. In market sentiment, which is mostly done through observation of social media platforms, upcoming events for particular cryptocurrencies, and forums. You can read more about that here.
  2. Long term market trends. Are we in a bull market or a bear market? Which tools can you use to determine oversold or overbought conditions? Make sure to educate yourself.

Obtaining a good level of understanding will help you time your trades better. This, in turn, will strengthen ant of the crypto investment strategies that you will choose to follow.

Choose the right exchange

Depending on the type of strategy you want to follow, find a platform that can support you.

If you primarily want to hold onto your funds or place a few trades per year consider using Paybis. Not only are transactions fast and efficient, but you won’t have to pay any fees for your first Bitcoin purchase (using a credit/debit card).

If, on the other hand, you want to explore the depths of swing trading, and feel you have reached a more advanced level, you can use platforms like Binance or Bitmex. These two are tailored towards users that perform multiple trades per day, often using very high leverage.

Be patient and consistent

Any crypto investment strategy you choose to adopt requires patience. In fact, a lack of patience is the main reason most new investors leave the crypto space on a bitter note. 

Warren Buffet once famously said: “You can’t produce a baby in one month by getting nine women pregnant.” In other words, some things just take time and can’t be rushed.

And this is especially true when it comes to crypto investing strategies. The ability to detach yourself from the situation and observe with a non-critical viewpoint can lead to a lot of profit

This is also why long-term BTC holders, otherwise known as early adopters, outperform most traders in the market. Holding onto your coins is just as stressful as trading them, but you simply act by not acting.

Practice emotional intelligence

The ability to control one’s emotions is the key to successful trading.

All too often, new investors will “fall in love” with a particular cryptocurrency. They will inflate their brains with all the aggressive marketing imposed upon them. We previously saw this with Litecoin, Ethereum, Tron, as well as many other “trending” coins.

As a result, users will either sell in a panic when they should hold, or they hold when they should sell. This almost always results in losses induced by extreme anxiety and fear.

This is also why, very often, position traders and holders will deliberately avoid the markets for a while. After they place a particular trade, they don’t allow their emotions to follow the market conditions. Ideally, you’d want to learn how to control your emotional state before entering high-risk trades.

Conclusion

The cryptocurrency markets have clearly entered into a new bull market. And with it come new opportunities to make lots of profit. If you have been sitting on the sidelines this is what you need to do to grow your wealth.

In this article we explored 3 crypto investment strategies and helped you determine which option works best for you. 

As each method can be talked about in-depth, this is just an introduction. It will help you perform more selective research. So, ideally, you’d want to delve even deeper from this point onwards.

All in all, choosing to trade crypto is a very risky practice. Therefore, you should never use funds that you cannot afford to lose. 

Frequently asked questions

Below are some of the most common questions and answers associated with the different types of cryptocurrency investment methods.

How much do I need to invest in cryptocurrency when swing trading?

When Swing trading, you can start with any amount of money you are comfortable losing. While this is a somewhat negative way to position yourself, it does illustrate the risk involved. Each trade you make should generally not exceed 1%-2% of your trading portfolio unless you are extremely confident.

How does Bitcoin investing work?

First, decide what type of strategy you want to follow. You can read the full article to get a better idea of the different investing strategies. From that point onwards, all you need to do is find an exchange platform and purchase your first BTC. On Paybis, you can do this with multiple payment methods.

Why is cryptocurrency a good investment?

As a new investment market, cryptocurrencies are still in their infancy. However, in the last two years, the regulatory framework around exchange platforms and new coins have tightened. As a result, governmental parties take the market more seriously. In the future, this can become a determining factor that draws many new investors to the markets.

What is position trading?

Position trading is an investment strategy that focuses on a lower amount of trades, for a longer amount of time. In essence, the trader buys or sells a particular cryptocurrency, expecting a change in the long-term trend. He then takes profits when his trade reached a target profit %.

What is swing trading?

Swing trading is the process of buying and selling cryptocurrencies based on short term trends. One can observe these trends through charts and indicators. Traders that implement this strategy usually add leverage to spot orders, in order to increase the potential profits with smaller price moves.

When should holders sell their coins?

Many people refer to Hodling as the most “honorable” investment strategy, especially when it comes to Bitcoin. However, it is not always the best option, especially if you want to increase the value of your portfolio. It is best to sell when the price-trend of Bitcoin forms two descending triangles after a new all-time high. This formation indicates the start of a new bear market. As such, it is one of the best crypto investment strategies to follow.

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