While investing in cryptocurrencies, every trader wants the purchased asset to grow and its price to be profitable. However, there is no one who can predict the value of a given digital coin. Therefore, many investors use a well-known, effective and simple profitability strategy. How it works will be discussed in this article.

Averaging strategy

If we want to invest our entire deposit in one crypto asset, the probability that the whole transaction will go in the wrong direction, causing us losses, will increase. It will then be problematic to rectify this situation. In this case, we will have to wait for the digital coin to appreciate or close at an unfavorable price. Buying tokens in parts will mitigate such risks.

This strategy is called averaging. If we decide to invest in a cryptocurrency, for example, $ 1,000, then it is worth dividing this amount into several parts and importing them gradually. It is unrealistic to predict exactly how the asset will behave a week after the investment, but nevertheless, if we adhere to this trading model, we will always be able to acquire a virtual coin at the time of its fall.

This averaging cannot be called very effective and profitable, as it can happen that digital currency starts to become more expensive and we have to buy it at a higher price, but in this way, we can avoid loss of the initial capital, and the profit from the first positions made at a lower price will compensate for any damage.

Diversification

There have been cases when we investors have invested all our funds in only one specific cryptocurrency. However, this increases the risks. We need to diversify our investment portfolio. What this means: when we invest, it’s worth having a few different assets in our digital portfolio. For example, stocks, cryptocurrencies, precious metals, etc. This is especially true during the rapid growth of startups. In such a market, it is impossible to predict with certainty the positive outcome of a project, so we must insure against failure through diversification.

Stop-loss

One of the most popular fears of investors is fixing losses. It is necessary to correctly calculate the time when it is better to sell a crypto asset and get out of position. There are many examples where a trader has bought digital currencies and then lost everything because he was trying to wait for the depreciation to end, and this has not happened for a long time.

If there are preconditions for the level to continue to fall, it is important to close even a losing order. A stop loss is one of the most effective tools at this time.

It also allows us to reduce the impact of emotions on the trading process. Some novice traders often succumb to panic, fear, or greed and make mistakes that lead to loss of capital. It is much harder to get out of position on time and admit your mistake than to keep sitting and watching the price go down. Stop-loss helps us not to hesitate in such situations, as it is an advantage to consider our trading strategy in advance, making the right order to avoid serious financial damage.

Another advantage is that we do not need to monitor the market 24 hours a day. Let’s assume that if we have bought bitcoin and its price has risen, we will therefore be able to set a stop loss of the entry point. In this case, even if the price of the coin falls while we sleep, the exchange will automatically sell our token.

This article should not be considered financial advice, and just represent the author’s personal opinion. For more information, please visit our Disclaimer.

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