Crypto learnings

Been learning a lot about Crypto currencies the last few weeks. Managed to 500% my investment in 20 days but it’s also been a learning experience how to trade, what strategies to follow etc. I am seeing it as a “long term education” program where I get paid to learn more about it.

As I watch the investments rise and fall and learn from mistakes I’ve made, I know that the only way you can be truly effective is if you have a clear exit strategy and means to mitigate against random market crashes and losses. It is very insightful to watch the current market correct right now and to develop that strategy going forward for the next rise and eventual fall.

There are three main markets in crypto land and four different types of trade opportunities.

Primary markets:

  1. Fiat currency
  2. Main or Bridge coins
  3. Alt coins

Trade opportunities:

  1. Secured gains
  2. Day trades
  3. Long term holds
  4. High risk ventures

Primary markets

For money to enter into the crypto domain it has to come from fiat currency still, so it is important to know how people are buying into the market. The most popular entry points are Kraken, Coinbase and GDAX.

Bridge coins are what I call coins that you can cash in and out from Fiat, the big ones are Bitcoin and Etherium, but to some degree also Litecoin, Bitcoincash and some others.

Alt coins are much harder to access because you have to travel via the bridge coin. And between exchanges it makes no sense to send small amounts of Bitcoin, due to high fees, so Etherium is by far the most popular inter-exchange currency – or the bridge between eco-systems.

Because of this network, any major market moves are going to trail from fiat into the bridge coins, then from bridge coins into alt coins. When the market then turns Bearish, alt coins will feed into the bridge coins and then from bridge coins back into fiat.

However a lot of exchanges offer a tether, like USDT which is a simulated USD currency you can exchange into in order to wait out a bear storm. So this does complicate things, but it often does require a two-step trade in order to get from an alt to USDT since usually USDT is not the primary exchange coin for alt coin exchanges.

Knowing that cash has to flow through the bridge coins you can monitor the transfer of wealth to and from alts to bridges and bridges to fiat over time and respond accordingly.

Trade Opportunities

Secured gains would be a percentage of your portfolio that is always sitting in Fiat or USDT that you can easily convert back into crypto currency when a big buying opportunity presents itself. This is also currency that you can theoretically, if not practically exit from the market into your fiat bank account.

Day trades are about market running, placing a buy and a safe exit if that investment turns poor. Once a run is completed, moving it over to another one on a limited number of exchange pairs.

Long term holds are coins / projects you believe in, that you think will have a long term return value.

High risk ventures are for unknown new coins that have just appeared on the market, no one is talking about yet and are under the radar. These coins will probably never turn big, but if they do, your initial investment may well pay off.

Next steps

Right now I’m still learning a lot about trading, so even though I knew about these things, I had a tactic to pull out 10% a month of my earnings but it was based on a calendar cycle rather than a market one. I also became interested in a wide array of projects, which can turn quickly into a pokemon “Got to catch them all” chase to have a bit of money on “all” the (good) coins.

The net result is I have (as of this writing): 0% secured gains, under 10% cash available for day trades, 70% cash-spread around long-term holds and about 20% of my investments on long-shot risky coins.

Where I want to now go with my portfolio is as follows:

  • 30% secured gains
  • 30% day trades
  • 30% long term holds
  • 10% high risk holds

It will take some time to shift it over, and these percentages are just a working-number – but it should provide a number of benefits:

  1. I will always have about 30% of my portfolio in fiat, so no matter what these are funds I can exit into cash at any time.
  2. I will be able to quickly buy up coins after any major dip for cheap
  3. The day trade funds will be on a very limited number of coins and as close as possible to Fiat, letting me quickly switch the next 30% of my funds back from crypto currencies back into tether and/or Fiat when necessary or as part of an automatic stop-loss while I am sleeping and something drops below an alarm level. Combined with my 30% fiat exchange value this mean I should be able to secure as much as 60% of my total portfolio into fiat whenever there is a bear feast on the market.
  4. Right now I have a habit of moving around my long-holds this is bad for taxes and also makes it hard to know how much return my longer holds are making if I keep trimming the tops off. So I plan on not touching these as often now, perhaps not even for a year (at least 1 year is the length you need to hold something for you to pay long-term gains on the return instead of short-term gain taxes). Instead on dips I can buy-up more. Obviously I still need an exit strategy for the long-term holds, but I’ve got time to think about it and I suppose if I learn the project is a turd – I can eject still the entire sum – but that should be a one-way door back into the day-trade pool for re-allocation.
  5. High risk trades can and will still be a good portion of my portfolio, but it is very hard to pull money out of tiny investments effectively. I could certainly vary the percentages here between long-term and high-risk buys, but my main concern with the high-risk buys is the potential that they become pump-and-dumps and then after the dump, they have no value. Which means you end up having to micro manage very tiny investments?
  6. Set wide stop-losses and automatic profit taking trades on various coins. The two groups that will benefit from this are the day-trades and the high-risk ventures. The day-trades can get 10% loss triggers where it sells it back to USDT when it falls below the entry point before I scoop it back up. For the high-risk coins I can mitigate the risk by selling it off back to a bridge-coin when it falls say below 10 to 50% my investment and conversely auto-sells 50% of the purchase when it hits a pre-set target like 1,000% gains. This will help mitigate the coin perpetually losing value and sell it off before it lands to zero, but also cash-in some of the return when it hits 10x. If I invest in 10 coins and 1 goes to 10x, this covers up to 9 other coins dropping to zero, and so should be a fairly good way to offset bad choices. Since I keep say 50% after the peak, it then leaves the rest open for further growth if the project really is set to become a block-buster.

PS I am not a financial advisor, just an amateur trader learning as he does and developing his personal methodology.

PS2 if you are looking to long-term invest, and not day-trade then the above is not as useful to you but I would still keep a good percentage, say around 50% in the bridge coins because they are the safest and most likely to perpetually increase in sustained value over time. It’s also a lot easier to stop-loss then your portfolio if half of it is in a bridge coin cause it is 1-trade away from a tether/fiat – and you can even set that to trigger automatically when it goes below a certain value.