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Beginner-friendly cryptocurrency trading strategies

by | Dec 17, 2017

If you’re a beginner looking to start trading cryptocurrencies, you’ve come to the right place. The following article compiles some important lessons which, if taken to heart, can help you avoid common mistakes that crypto traders face. Before going any further, please note that this article won’t be covering technical analysis. That is a more advanced topic that you shouldn’t worry about until you get more comfortable with crypto trading.

Common Cryptocurrency Trading Strategies

HODL (buy & hold)

The easiest and most straightforward way to invest in Bitcoin is to buy and HODL or “hold” your coins.  That means buy them and then lock them away – without accessing them for a long time. The idea behind this is that if history is any indication, by the time you revisit your coins in many years, they will be worth quite a bit more. This way, you can stay calm through the highs and the lows (swings) in between, and just not worry at all. This strategy is a really prevalent one in the cryptocurrency world, mainly because of its ease of execution.

Cost averaging

Another conservative strategy for investing in Bitcoin is called “cost averaging.” This strategy is good for people who worry that a coin’s price is currently too high and they are afraid that it may drop heavily, soon after they buy it. So in order to hedge for a potential price drop, you invest smaller amounts of money on a regular basis. This basis can be anything you decide – every day, week, two weeks, month, etc. The only thing to consider is potential exchange withdrawal fees piling up (if you choose to withdraw to your own privately held wallet every time after purchasing). So do some research on that, and choose an exchange, a time period, and periodic amount that makes sense for you.

If you think about it, putting in small amounts regularly averages your “cost-basis.” So if the price drops rapidly, you still bought some coins at a higher price, so your whole stack – all your coins collectively – are still worth more than the low price that the coin dropped to. Let’s look at an example to make things more clear:

1st buy: $50 investment when coin X is worth $25 = 2 coins purchased
2nd buy: $50 investment when coin X is worth $10 = 5 coins purchased
Cost basis: 7 coins at average price of (2 x $50)/7 = $14.285

So you have bought each of your 7, on average, for $14.285. Whereas if you spent $100 all at once, you would have 4 coins for $25 per coin. If the opposite occurs and the price goes up after your first buy (higher than $25), you will then be buying less coins per period. In that case, however, your profit will be lower than if you had invested all in the first buy. This method works both ways: highs are less high, lows are less low, but overall risks are lower as well.

Periodic rebalancing

If you like to manage risk in your crypto portfolio, you should definitely think about rebalancing your portfolio often. The idea is to set aside certain percentages of your portfolio for various category of coins, for example blue-chip coins, lesser known altcoins, ICOs, etc, or a certain percentage per coin that you hold. And every once in awhile, if a certain category or certain coin has increased in value way faster than your other ones, you may want to sell some of those profits and put them back into other coins so that your portfolio percentages are back to what you predefined. Of course you can adjust those percentages depending on what you’re looking for – this is the same as mutual funds letting you adjust your percentages for stocks/bonds, for example. To manage this process you can create your own spreadsheet or search for crypto portfolio management products – there are many free ones out there!

General crypto-trading principles

Buy the dip

If you feel uncomfortable when a particular coin is at its all time high price, you may want to consider waiting to buy the coin when it “dips” or drops in price. This is always a good strategy to get good value for your coin. The issue is, no one knows how far it will dip when it starts dipping. You may get too impatient and use all your funds to buy when it dips a little bit and then kick yourself when it dips significantly more, some time later. On the other hand, if you sit and watch it for too long, you may miss the dip completely. The best way to approach this (and any other strategy) is to come up with a plan beforehand, in terms of price levels and amounts you’re willing to spend, and stick to it, rather than give into impulses. For example, choose various price levels where you will buy into a coin when the price drops (similar to cost averaging). Be careful with this method that you will only buy a coin that “dips” in price if you at that point in time still believe in a good value for long term, because you don’t want to catch a falling knife either and holding a bag of worthless coins afterward.

Lock in profits

Sometimes when a coin you own is going to the “moon”, you have on rose-colored glasses and think that it’s price is going to go up forever, so you keep holding on to it. This is very often a mistake because history shows that usually after a quick and sustained upward movement, the coin’s price is bound to drop at least a little bit. A smart alternative thing to do is to set pre-defined levels where you sell a portion of your holdings and thus lock in some profits. Think about it this way – if you hold your coins all the way through the upward rise and all the way back down, then you’ll have ended up in the same place you started.

Increase your position

Similarly to locking in profits, sometimes when your coin rises to a certain level, you may want to sell some so that if it drops in price, you can use those funds to buy back in at a larger share. Basically, you would have increased the number of coins you own without spending any additional money! The way to approach this is to set a predefined level that you’re willing to buy those coins again and BE PATIENT. Do not move up your price level because you are worried that it won’t drop back down to that level. Since you only sold a portion of your holdings, if the price never drops back down to the level you want, then you can just use those funds to buy a new coin that you’ve been keeping your eye on for a while… win-win!

Cut your losses

On the other side of the picture, if one of your coins drops in price and you no longer believe in it, you can consider cutting your losses. Rather than hold on to a underperforming coin forever, like many of us do due to psychological biases, it might be more optimal of a strategy to just sell those coins and put it into a more promising coin which might rise faster and help you recoup your losses faster than if you held onto your previous coin indefinitely.

Lock your coins away

If your strategy involves not touching part of your portfolio, then you should consider putting those coins in a location that’s harder to access, like a paper/hardware wallet or an exchange vault, for example. This way, you aren’t tempted to access those coins and actively trade them when you’re bored. Many times when people get bored, they take their coins out, execute sub-optimal trades, and make mistakes that wouldn’t have happened if they just stuck to their original strategy. Locking your coins away can be a good mechanism to prevent you from doing so because it involves additional hassle/effort to take them out and start trading them.

If you’re also interested in learning about the high-level cryptocurrency investing process, be sure to check out our guide here: high-level crypto-investing guide.


This article was written to the best of our knowledge with the information available to us. We do not guarantee that every bit of information is completely accurate or up-to-date. Please use this information as a complement to your own research. Nothing we write in any of our articles is intended as investment advice nor as an endorsement to buy/sell/hold anything. Cryptocurrency investments are inherently risky so you should never invest more than you can afford to lose.

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