HOW TO REDUCE RISK WHILE INVESTING IN DIGITAL ASSETS
A quick checklist for beginners’
Investing in any asset class requires an understanding of certain principles and practices to help meet your goals. Digital assets are a new asset class in it of itself, so on that not, here are my Top 11 principals for Digital Asset Investments.
1. Learn: This is fundamentally the most important principle, as without this everything else fails. Make sure before you venture out into investment domain you are well equipped with at least the basics. Learn basic Technical Analysis (TA), how to read charts and follow patterns. Invest some time to learn the tools/indicators for market prediction like RSI, Bollinger Bands, Moving Averages etc. My personal favorite is Elliot Wave (an age-old principle that's also a favorite of Warren Buffett).
Also ensure you DYOR of the project you plan to invest in (Study about – Product Use-case, the team behind the project, the market size, competition available, the strength of the sub-teams i.e Product development, Marketing, Legal, Advisory, Customer support etc)
2. Set Goals: A lot of people fail in investments as they do not set goals, hence don’t know when to exit.
Set 3 kinds Goals:
A. Short Term – To meet your day to day expenses.
B. Mid Term – To achieve lifestyle goals like Car, Vacation, Luxury products etc.
C. Long Term – Financial freedom (creating cash flow which can suffice the needs for rest of your life),and enough wealth to purcahse big ticket items such as a dream home or luxury vehicle.
3. Diversify: The basic principle of ‘Never put all your eggs in a single basket’ is essential. Never bank on just 1-2 coins, identify 8-10 good projects and diversify your exposure(thus minimizing your risk of project failure as well).
4. Book Profit: It's only a gain if you close out the trade. It is Important for short term trades to learn how to ride waves (read Elliot Wave theory. Trading view also provides many charts for the same).
5. Law of Averages: It is important to learn ratios and know that more often than not they work. No strategy will work 100% of the time. For example, if you are using RSI as a tool give it 10-15 trades for the averages to work in your favor. In addition to paying attention to the percentage of times a strategy works, also be attentive to the profit and loss for each trade. If a strategy works 50% of the time, but the wining 50% of trades book $100, and the losing 50% of the trades lose $25, this is a winning strategy. Likewise, there are cases where most trades can be profitable - but the strategy still loses money overall as major losses exceed the dollar value of minor wins.
6. Set StopLoss: Another important step towards risk management is risk mitigation; learning about setting StopLoss triggers can go a long way in that aspect. Take emotion out of trading, and define when you're willing to exit a trade.
7. Don’t be emotional: After Knowledge this is perhaps the 2nd most important principle to follow. Getting emotional in investing can be disastrous. Avoid FOMO (emotional surge of Fear Of Missing Out), Panic selling. Avoid making the mistake of looking at price charts every hour when you know you are far away from your set goal and then selling at loss in a bear market. Patience is a virtue which is required especially in a bear market. Remember, you are at a loss only if you sell your assets at a loss, learn to HODL (Hold on to your Dear Life), unless your thesis on a coin changes.
8. Create Residual Income: Digital Assets provides ample opportunities to create Residual income where your money creates a passive cash flow for you. Plan and gradually increase your investment to such a level that the residual income output you get meets your goals. To start with you can park a portion of your portfolio to POS coins or allocate for rewards (like Freezing TRX for Super Representative rewards). Then you can upgrade to set up a few MasterNodes. Finally, if you gain expertise setup your own mining rigs. Let the power of compounding work on it!
9. Don’t Speculate/Be Greedy: Understand that you are investing here, not gambling ..for gambling you have Casinos ;) . Thinking of becoming overnight millionaire is the quickest path to failure as you set wrong expectations from yourself and with the market. As the Saying goes ‘Rome was not built in a Day’ the same holds good for investments in Digital assets as well. Have Patience.
10. Leverage correctly: Leveraging is a powerful tool if utilized correctly and within safe limits, else it can backfire drastically. Leverage Bank’s Money/Trades only to the limit for which you have cash to cover in case of the trade going wrong. Advisable not to use it if you are very new to the market.
11. Trust chart and not your feelings: The digital asset market currently has many manipulators who try to play with your feeling (through media articles, news, pumps&dumps etc), you win if you have a strong hand and rather than going by other’s random advise you believe and follow the charts. Rather try and find a GURU/Coach who can act as your guiding light.
You are in Digital Assets market which is just about 10 years old; hence we all are the early adaptors. Play it by the book, play it safe and smart! There are rich dividends to be reaped in years to come. Happy trading and investing.
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