The veteran cryptocurrency analyst known as Mr. Whale listed in a recent article the 7 mistakes that keep investors from profiting from digital assets.
According to him, investors often fail to do adequate research, have a trading plan, learn technical analysis and draw strategies, to simply “HODL”.
In other words, buy the cryptocurrency and keep it until it gives you huge profits. However, for the analyst, this is not the best tactic:
“You’ve probably heard the saying ‘If you don’t sell, don’t lose’ by some cryptomaximalists before. This perfectly sums up how much of the crypto space is uninformed about investments or negotiations. Most investors do little or no research, have no idea of the market value of the currencies they own, and have not done any technical or fundamental analysis.”
1- Understanding market cycles
The first mistake on the list is not understanding that the market has cycles between peak and trough. As the analyst pointed out, understanding this is essential as it can help predict future price movements.
Mr. Whale noted that some market cycles are separated into four phases: accumulation, price rise, distribution and decline.
2- Average price
The second point is not to consider the “average price” of the investment:
“Obviously you want to buy at the lowest possible price, but often people only see the opportunity when the asset has already reached its highest point. Going all-in at the peak is a guaranteed way to go broke.”
Instead, the analyst advises using a strategy called dollar cost averaging. This involves investing smaller amounts but regularly, especially when the market declines.
According to the analyst, this is a particularly powerful strategy in volatile markets.
3- Diversification Strategy
The third mistake is not diversifying the portfolio. According to the analyst, in volatile markets this strategy is particularly useful.
As he noted, while experts claim that the altcoin market is correlated with BTC, there are many projects that serve different purposes than BTC.
Thus, they can result in differences in price performance as the market becomes more established.
“Identify the different types of cryptocurrencies available and make sure your portfolio represents each of those types.”
Different types of cryptocurrencies include: transactional tokens; smart contract tokens, utilities, DeFi tokens etc,
4- Making profits
The analyst noted that profit taking is absolutely essential, but hardly anyone talks about it. That’s because many in this space want to lead others and not be the last to leave.
“I am a strong advocate of taking profits and building a strong exit strategy. Unrealized profits are not profits. At the peak of the last bubble in 2017, almost everyone in this space became incredibly wealthy…on paper. All of that disappeared in 2018 after markets fell 85-99%. No doubt it will happen again and you must be prepared.”
5- Play only with what you can lose
Fifth, the analyst considered that one should not invest what cannot be lost in a volatile market such as cryptocurrencies.
In addition, he advised investors to avoid leverage:
That’s because, according to him, most centralized exchanges are “extremely corrupt” and “make millions when you get liquidated.”
6- Don’t be greedy
The sixth mistake also has to do with profit-taking. After all, when markets are green and everyone is euphoric, greed prevents people from wanting to guarantee those profits.
“It’s crucial to maintain balance and stick to investment fundamentals, such as maintaining a long-term horizon, an average dollar cost, and ignoring the herd, whether they’re buying or selling.”
7- Don’t follow the herd
Finally, Mr. Whale emphasized that the key to successful negotiations is to develop an individual, independent system that contains rational, scholarly, disciplined, and unemotional analysis.
“The choice will depend on the individual trader’s unique predilection for graphics and technical analysis. If the market reality is in accordance with the principles of the trader system, a successful and profitable career is born.”