Given the recent market fluctuations, crypto traders are seeing, it is important to step back and talk about some of the basics that help crypto traders (and those who invest overall) continue to protect their crypto investments. The reality of trading any financial instrument is that new traders should be focused on understanding the risks involved and keeping their emotions in check. In this blog, we’ll tackle one of the most challenging subjects given the market’s recent volatility: how to manage your crypto portfolio while maintaining the lowest possible crypto tax rate.
What is a Cryptocurrency Portfolio?
If you’ve never traded before, you may be unaware of some of the terminology used by seasoned crypto traders. One such phrase is the use of cryptocurrency portfolios. Cryptocurrency portfolios are a system set up to help you monitor and manage all of your cryptocurrency assets in one convenient location.
1. Balance Your Crypto Holdings
Your crypto holdings are what give you the chance to invest and gain financial independence and freedom. It’s important to ensure your crypto holdings are balanced and not too heavily invested in one crypto token or another. Due to the volatile nature of the cryptocurrency market, tokens and NFT projects should be invested with care. You should always strive to balance your portfolio by not investing or going “all in” on Ethereum (ETH), Safemoon (SAFE), . Novice traders should, instead, attempt to balance holdings to mitigate risk. One strategy is to invest (at most) 10% of your holdings in one or more cryptocurrency tokens or projects and continuously reevaluate the trend of the market overall and your exposure to volatile areas of the crypto market.
2. Remain Rational with Your Investing
Trading cryptocurrencies brings with it anxiety and, often, new traders in the crypto space are irrational in their decisions. It is important to be rational and logical when making decisions about which crypto token or project you’ll support and what will be the most financially rewarding. Always trade with a plan and have a reason for why you make your trading decisions.
Always remember these tips when trading:
- Follow sound principles of trading
- Seek to truly understand a cryptocurrency’s movements on a chart
- Treat trading as a learning experience and go slow with deliberate trades
- Always have a recap after a session.
- Think about the lesson in every trade.
3. Avoid The Hype
Many traders buy crypto tokens when they hear a friend tell them “this token is going ‘to the moon.” Hyped-up tokens and NFT projects may well reach miraculous one-time highs but at those high price points, crypto traders will often continue to invest even when signs point to a pullback or a retracement. Remain calm and think through your trades. Avoid the hype of news boards or your favorite Discord channel and, instead, take the time to understand what the charts are telling you. Don’t go with emotions but use a balanced approach to trading by using part logic and part emotion. Find the ‘why’ during every trading session and use straightforward, proven logic and news reports to make your trades. In this manner, you’ll balance your crypto portfolio in the proper way which helps you mitigate risk.
4. Develop a Strategic Trading Plan
Before you even enter a trade, you should understand the why behind your trade, what your expected profit is, and at what price point you’ll sell your tokens at. It’s important to take out a sheet of paper and write down this information as it will then become cemented into your mind and give you a clear roadmap forward in your trading journey.
A trading plan should consist of at least:
- Mood Assessment (How are you feeling? Are you ready to trade?)
- Set Risk Levels (What is your appetite for risk? Is your trade within your risk tolerance?)
- Set Goals (what is your expected profit potential)
- Entry and Exit Points (when exactly will you enter, exit, and why are these levels important entry or exit points?)
- Protect Your Assets (Ensure you have a stop-loss or exit point in case a trade doesn’t work out in your favor)
5. Practice Risk Management
Sound risk management involves understanding what you are willing to lose and protecting the previous trading capital and assets you’ve acquired over time. Risk managers have different risk levels at which they suggest traders invest with depending on their current trading capital, risk appetite, and how familiar they are with trading. As a beginning crypto investor, you should look to only invest less than 5% of your holdings in one crypto token or project. It is up ot you though how aggressive you’d like to get with your trading capital but to practice sound risk management, you should initially learn the basics of crypto trading before you invest too heavily into a token going “to the moon.”
Build Your Crypto Portfolio Today
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