I’ve had friends who bought Bitcoin for the “long term” but then sold it after a few months at a loss. You hear about traders who are “trading” cryptocurrencies but hodl their dear shit coins when the price drops in hopes of mega-gains sometime in the future. Others set up for a big swing trade over weeks/months, but cut out because they read a negative Huffpost article that convinced them that crypto was a fad.

The importance of mental/emotional fortitude and resilience is nothing new in the world of trading, but it becomes ever more crucial in our digital environment. We’ve become increasingly less patient, anxious, distracted, and more easily swayed than we’ve ever been. We live in a world where saying “you have the attention span of a goldfish” has actually become a compliment (the average attention span has dropped down to 8 seconds, less than a goldfish). The coinmarketcap app certainly doesn’t help in fueling our addiction.

I’ve made these mistakes, too. Fortunately, I never borrowed money, unlike some of the poor guys mentioned in the sobering NY Times piece about the post-crypto boom. Those most easily swayed by the waves of irrational exuberance are those that go in with zero plan. They buy bitcoin or altcoins reactively (emotionally), a tweet, a reddit post, an article they’ve read, or a friend. But in doing so they throw their plans out the window, and risk management goes with it. Splat. Considering that money is on the line, this is often disastrous. Nobody is going to protect you.

Three basic rules of investing in crypto…and surviving in shark-infested waters.

  1. Make a plan. When you invest decide what type of investment you’re making (see below)
  2. Diversify. Don’t put all your cash or crypto on one exchange. Split it up into several exchanges, buy hardware Trezor wallets, keep one at your parents house and bury one in your backyard just in case.
  3. Don’t make investment decisions when you’ve had too many Mojitos. You’ll almost always regret it.

Three capital buckets for crypto.

  1. Short term trading capital mostly in fiat currency (days/weeks/months). You want to have ammunition in the form of USD/GBP/YEN, ready to buy. Never use 100% of the cash because you will always benefit from having the dry powder. What if bitcoin goes down to $3,000 tomorrow? You want extra cash set aside to be able to scoop some up. Here I’m looking for short term gains of 30%+.
  2. Long term investment capital (multi year holds, pre-ICO’s, STO’s). Put these long term investments on cold storage and don’t touch them for a couple of years. You should NOT be checking the price on these regularly. Check in every few weeks/months. If you are planning to sell some of these if they go to, say, 10x or 20x, then you can set price alerts via email.
  3. Passive income buckets/miscellaneous (trading bots/masternodes/airdrops/dividends/affiliate income). There are so many ways to make a little bit of extra money with crypto now that it’s hard to keep track of. You can treat these investments as short-long term — it’s up to you (for example, use the LTC trading bot to make 1.4% returns/day and either pull it out after a few weeks or reinvest your earnings for a few months!)

Let’s say you have $5,000 USD. If you were to put all of that in one trade without any stop-loss orders, the next day you could wake up to a degenerate red candle and 50% of your portfolio wiped out. The game is over quick.

Everybody’s penchant for risk is different, so I can’t say what’s right for you. It all depends. But I’d say it’s more sensible to take that 5k and put 2-3k of it in longer term and passive income streams and keep 2k in cash for your ammunition and weekly/monthly trading.

The point: win over the long term, and the game is to not get wiped out. Play the long game. Decide what buckets you’re going to have and stick to your plan!

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