The cryptocurrency is the hot topic of this summer. Everyone is talking about the incredible increase of Bitcoin, Ethereum, Litecoin and so many other cryptocurrencies. Those currencies are pointed either as the new way to be multi millionaire in few weeks or as the example of a bubble which is about to blast. I’m currently invested in the Litecoin and I’m going to tell you why I’m absolutely not worried.
#1 Which cryptocurrency to choose?
Let’s see how many cryptocurrencies are currently listed on coinmarketcap.com : 762. To filter out only the “interesting” one we are going to apply different filters.
First, how large is the volume (24h). A large volume should be your first concern since it’s an insurance for being able to buy or sell quickly and do not stay stuck with your cyptocurrency that nobody wants anymore. If we sort by decreasing volume we have:
- Ethereum classic
Second, the market capitalization is also important. The market capitalization is the total dollar market value of your cryptocurrency. The bigger it is, the more confident are investors and less the cryptocurrency can be manipulated. Again if we sort by decreasing market cap, we have the same top five cryptocurrencies.
#2 Wait! What about the price?
The price is also one of my criteria but it is the less important one. I do not pay much attention to the price since we absolutely don’t know how the price is going to evolve whatever the cryptocurrency chosen. Maybe we are in a bubble, maybe not, nobody knows. Don’t listen the “pseudo gurus” telling you that you should stay away from the cryptocurrencies and don’t listen your friend telling you that you should buy $150.000 of Bitcoins. Let’s see a chart of the Ethereum/USD:
If you take a look on Google you will find articles talking about the Ethereum bubble in march. March was just the beginning of an exponential increase as you can see by the chart above. The point is, in the market and especially when the market is euphoric like for the cryptocurrencies, you can’t know when this euphoria is going to end. You either go in or stay out. I didn’t want to put too much money so the Ripple was my first choice but since it is unavailable on Coinbase.com, I decided to buy some litecoins.
#3 Your money is lost
Yes that’s right and that’s the key. When I bought my litecoins, I put an amount of money that I’m absolutely willing to lose and I’m actually considering this money as being already lost. For instance, if you decide to buy $1000 of Litecoins, you have to accept that this money is lost. Of course you don’t want to lose this money but if you lose it, this should be painless for you. Why you have to assume your money is lost:
- You don’t know when the increase is going to end and because it’s an exponential increase, you will always be scared of buying by thinking “it’s too high”.
- The fees are extremely high so buying and selling like a day trader can be very very expensive.
- The volatility is very high and it’s psychologically complicated to deal with.
Let’s see a chart of the Litecoin
The green line in the chart above represents my entry. I can swear that I didn’t even look at the chart before taking my position. Why? Because in my head, the money I’ve used was already lost so I didn’t care where I was getting in.
#4 When to exit?
I have just a simple strategy to know when I should exit my position. If the litecoin closes under the 50 SMA, I sell. That’s it. Why? Because the litecoin never closed under its 50 SMA and since the increase is quite exponential, this should never happen.
#5 To sum up
Use an amount of money that you are willing to lose without any regrets and take a position. If the increase continues you will be very happy (like I am at this moment), if not you could still close your position with a loss but an already accepted loss which is easier to deal with. If you liked this article you will like even more you free guide by clicking just here. Happy trading!