It is not enough to hold any amount of any asset to make a profit in the cryptocurrency market.
Many novice traders think they can double their capital in a matter of days. The problem is that in order to (have a chance of) achieving this, they must have an extremely aggressive day trading and scalping strategy, involving almost their entire portfolio. If prices go down, it’s fatal and they lose a lot – if not everything.
We are convinced, and years of experience have proven it to us, that to generate regular profits, good management of your cryptocurrency portfolio is crucial. Division of a cryptocurrency wallet
Would you like to build or optimize a portfolio? Here we propose a division and diversification strategy based on different investment periods:
Note that you already have some good notions of trading, you can also add a 4th part for leverage within the portfolio.
Each of these divisions must be considered according to three different factors:
Short-term positions
In cryptocurrency trading, short-term positions refer to what is called “day trading”.
Investment time
Usually one to three days.
Risk-return
Must be greater than 1:1 but not necessarily 1:3 or 1:4.
The entry strategy
We enter when there is a bullish confirmation of indicators. This confirmation is usually related to momentum, volume and trend. In a bull market, the profit optimization strategy can be as follows:
Of course, you need to keep in mind the market situation and not necessarily look for 10% growth with each investment. It is important to have risk management and profit limit management to ensure profit.
When the short-term market trend is uncertain – and can lead to a rapid reversal of the trend – one should trade with a more advanced strategy at the risk of suffering losses. Here’s one:
- When you enter the position: place your parameters, including your stop losses, according to your earning targets.
- When your first target is reached: as the market is uncertain, sell 50 to 70% of your position to ensure a profit (1% per day is 34% at the end of the month in cumulative profits). Move your stop loss to your break-even point (after transaction fees) – the best being to use a trailing stop that will follow the evolution of the price and secure profits. The ideal is to place this trailing stop at 1% of the price.
Medium-term positions
Investment time
Usually from three days to two weeks.
Risk-return
Must be greater than 1:2, but not necessarily 1:10. As you invest over a longer period of time, your return must be higher. Be careful, you should not set unrealistic targets either.
The entry strategy
We usually buy close to the support and resell as close as possible to the next resistance. (link supports/resistances) Note that you can also buy if you see that a resistor has a lot of chances of being broken, but this is much rarer. Long-term positions
Investment time
Usually beyond two weeks.
Risk-return
The RR ratio is more based on the long-term trend. The longer the position, the greater the stop loss must be, allowing the position to fully develop. Indeed, the risk of fluctuation is greater in the long term.
It is a question of analyzing what profitability a value could achieve in the long term. The risk-return must be greater than 1:1, but has no limit.
The entry strategy
The ideal is to buy near a long-term support.
In fact, the strategy is more about surfing on the different uptrends and buying back during downtrends. It is actually a question of setting a maximum level of loss via a stop loss, and reselling once the value has increased. Example of a balanced cryptocurrency wallet
Here is how crypto-Addicts’ portfolio is divided and diversified (as of September 7, 2018). Example of a balanced allocation of a cryptocurrency wallet
We have divided this portfolio into short-term (day trading), medium-term (days to weeks) and long-term (weeks to months) positions.
The ratios are based on different elements such as volatility, market capitalizations, news, market situation, etc.
In the current situation, we hold nearly 25% of our portfolio in storing, for the simple reason that the recovery is not yet confirmed and we prefer to be cautious before increasing our exposure to the market. Our tips for managing a cryptocurrency portfolio
- In case of uncertain market we advise you to avoid putting more than 15% of your assets dedicated only to the short term. In case of bear market put maximum only 5-10% for the short term. In case of a bull market, do not hesitate to put between 20-30% in short-term investments.
- To know what proportion of your short-term part to invest in each of your trades, 3 factors must be taken into account.
- First, the volume of the last 24 hours related to the potential investment. For example, if this volume is 8 BTC do not invest 1 BTC you will create a pump.
- Second, the venture capital you are willing to invest. If you agree to lose 3% of your short-term value for an aggregate total of your portfolio at risk of loss of 0.5%, calculate which part dedicated to your short-term investment is acceptable.
- Thirdly, humanly and even with a bot dedicated to your trade, it is difficult to follow 20 trades a day because even with a bot tracking your investment, sometimes it is interesting to sell everything at a time. It is therefore necessary to decide how many short-term trades you are willing to follow per day. If you decide to follow 5 maximum, knowing that each of them can take more than a day to reach the potential, allocating 20% of your portfolio for the short term, invest only 4% per trade.
- Regarding your long and medium term assets do not hesitate to base yourself on the following elements: volume, trends, news, daily support or 4 hours or you can also trust professional channels. Keeping reserves in FIAT or USDT is not a bad thing anymore, you should not always try to have invested everything, sometimes it is better to wait for the right time to enter new positions.
- At present, for a rise in the market there will always be a first growth of BTC and only the latter stabilized a growth of Atlcoins. Keep that in mind.
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