How To Manage Your Crypto Portfolio Profitably
6 mins read
14 days ago
Crypto adoption has quickly spread across the globe as people learn how cryptocurrencies can revolutionise the financial ecosystem and facilitate financial freedom. More importantly, success stories of millionaires have driven many to cryptocurrencies with the desire to earn a passive income or become full-time crypto traders.
After buying their first cryptocurrency, many discover that the market is very volatile. Although there are several opportunities to earn from price gains, price dips can be scary. Most times, all they are armed with is the simple instruction, “buy low, sell high.” This is the key to every market, but as they soon find out, this isn’t all it takes to manage a crypto portfolio.
No one likes losses, and although they are inevitable in a volatile market, there has got to be a way to minimise losses and increase gain. For this reason, we have provided a detailed, no-nonsense guide to help you understand and manage your crypto portfolio profitably.
What is A Crypto Portfolio?
A crypto portfolio is simply the collection of cryptocurrencies you own as a trader or investor. Most beginners are misguided to believe that all it takes to manage a crypto portfolio is merely holding some bitcoin or another crypto token, and they will become millionaires.
This is a good start but managing a portfolio is more than holding bitcoin. Sure, you could earn a significant profit in the long run, but as an investor, you should be able to benefit both short and long term. Before we delve into how to manage a crypto portfolio, let's briefly consider the types of crypto traders or trading strategies.
Types of crypto traders
- Swing traders: A swing trader holds crypto for a few days or a couple of months and makes a profit from market fluctuations.
- Position traders: Position traders are similar to swing traders, but they hold crypto assets longer, for months, and generate profit from major price fluctuation.
- Day traders: Day trading is a trading strategy that involves buying and selling assets within the same day. Day traders make profits from small price fluctuations/
- Scalp traders: Scalp trading takes the shortest time frame and is the most advanced. It takes place in a few minutes, with the trader buying and selling crypto tokens based on the slightest price fluctuations.
How to Manage A Profitable Crypto Portfolio
Deciding to invest in the crypto space is a big step, having a profitable ride is another thing. Still, the question that always pops in right after is, “How do you manage your crypto portfolio as you pursue your respective career and daily activities?” “How do you manage a profitable crypto portfolio without the expertise of a crypto trader?”
Managing a portfolio isn’t complicated and armed with the needed information, you can easily manage it while juggling your other responsibilities.
Below are a few of the many ways to get started;
1. Understanding Your Risk Appetite.
Risk management is one of the best trading strategies to becoming a profitable trader. It is the easiest differentiator between a newbie and a pro trader. Before placing any trade, it is important to know if you're a high-risk, medium-risk, or low-risk trader. It is generally not best practice to go high risk as a newbie. It is also not advisable to engage in trading with money that is set apart for an urgent need as you may risk losing it.
2. DYOR (Do Your Own Research)
This is an essential key to managing a crypto portfolio. You can only successfully profit from an investment when you have first-hand information about it. Cryptocurrencies are published in white papers or research reports that offer insight into their substantial value. Having adequate information and not just from hearsay will ensure that your crypto portfolio consists of viable coins that have the potential for growth and not just scam or shit coins.
3. Don’t Be An Emotional Trader
It is natural to get swayed by emotions, especially when in a losing trade. However, fear and greed can result in significant losses. Traders with FOMO (fear of missing out) syndrome rush into hasty crypto investments, often falling for crypto scams. At the same time, peer pressure can have you investing in specific cryptocurrencies because of the hype, but without research, you might invest in a shit coin. Emotions may also have you hastily selling off your cryptocurrencies after a price correction without considering the future price gains.
“Do not put all your eggs in one basket. ”There are over 5000 cryptocurrencies, but most beginners often focus on just one bitcoin mostly. Holding one cryptocurrency allows you some profits but may leave you prone to extreme ups and downs.
5. Budget allocation
Some investors are quick to invest all their funds in cryptocurrencies. As a result, when there is a bearish run, they quickly withdraw their crypto assets for fear that it will dip even further and they will have less to spend. The consequence? Oftentimes, they end up selling for lower than their buying price. The solution? Create a budget and allocate some, not all, your funds to your crypto investment. This way, you won’t be easily swayed by the market.
6. Consider Dollar-Cost Average (DCA) investments.
DCA investment strategy helps to ensure that you benefit the most from your investment. It involves dividing your investment capital into periodic investments. This means rather than investing $1000 at once into a crypto asset. You first invest a percentage, perhaps 30% ($300), and spread the investment over time.
It is a long-term investment strategy and helps you grow a profitable crypto portfolio. This way, you can easily buy assets when there is a bullish run, and after investing, you can easily pull out of an investment if you realise it's not profitable without suffering much loss.
7. Keep track of market trends (live chart).
In the same way, you cannot plant a seed and abandon it with the expectation that it will grow; you shouldn't do the same with your crypto wallet. You have to keep track of price changes. You want to know when to buy the dip and when to sell it. You don’t have to check your mobile every few minutes, but regular checks are great. You’ll understand price trends and be more informed on the best time to exit or enter a market with time.
8. Stay informed of the market.
The cryptocurrency market is highly volatile, and news sometimes rumours can significantly impact market trends. Keeping up with the latest news can assist you in making well-informed decisions about your portfolio.
9. Leverage Trading Tools
When learning to ride a bicycle for the first time, we use training wheels or get the help of family and friends. They guide you steadily till you are better and can ride independently. Trading tools like stop losses are essential and can help protect you from experiencing significant losses in the crypto space.
10. Track your profits
Tracking your portfolio is the only way to know if it is profitable. As a result, keeping track of your bitcoin holdings is essential. However, keeping track of your cryptocurrency holdings can be tricky and time-consuming. Fortunately, you can track your portfolio using various apps and websites. CoinStats, Quadency, CoinTracker, Coin Market Manager, and CoinMarketCap are just a few.
11. Decide on an Exit plan.
Crypto traders often focus on entering a market, but they hardly have plans for an exit plan which is also part of portfolio management. After successfully executing a trade, you are naturally happy, but it can keep you overconfident such that you hold on to that trade.
Investors hold on to a trade that has proved successful till it collapses and they incur losses. Price corrections can be temporary, and the price can bounce back, but then in a worst-case scenario, it keeps dipping further, leaving you stuck in the trade. Successful portfolio management is knowing when to enter and exit a trade.
Tips to look out for when managing a profitable crypto trading portfolio
- Find an exchange with the best rates and low fees: The goal is to buy low and sell high, so you need a crypto exchange with competitive rates. However, the security of your funds is essential, so be sure to look out for that.
- Decide what kind of trader you want to be: There are several trading strategies, however, and each has its benefits and risks. Your risk appetite, your time, responsibilities will help you determine if you are suited as a day trader or position trader and the type of trading tools you will use.
- Start small: Invest only what you can afford to lose at first till you get more familiar with the market.
There is no one size for all approach to enjoying profitable trades, no manual will show you when to buy and when to sell. However, with practice, you will improve.
It's also essential to research more about cryptocurrencies to build a portfolio that suits your needs and investing style. Being rational and less emotional allows you the clarity to manage your portfolio and avoid making hasty mistakes. Diversifying your crypto portfolio helps you balance and grow your crypto portfolio.
Disclaimer: This article is meant to provide general guidance and understanding of cryptocurrency and the Blockchain network. It’s not an exhaustive list and should not be taken as financial advice. Yellow Card Academy is not responsible for your investment decisions.