If you're serious about staying in the cryptocurrency world for the next few years and treating trading as a secondary profession, these 10 essential rules will provide crucial insights. They offer practical advice for anyone aiming to make a living from trading crypto. Be sure to save them for future reference!
1. Beware of the Pitfall of Losses
Letâs say you start with $1 million. If you manage to double your investment and reach $2 million, but then experience a 50% loss, you're back to square one with $1 million. This highlights a harsh truth: itâs far easier to lose 50% than to gain 100%.
2. Gains and Losses Don't Cancel Each Other Out
If you have $1 million and your portfolio increases by 10% on the first day to $1.1 million, then drops by 10% on the next day, you'll end up with $990,000. The same outcome occurs if it drops first and then risesâyou're still down to $990,000. Now, if you manage a 40% gain one year and a 20% loss the next, and this cycle repeats for six years, you'll only grow your portfolio to around $1.4 million. Your annualized return? Just 5.83%, which underperforms even long-term government bonds.
3. Small Daily Profits Can Compound Rapidly
Starting with $1 million, if you consistently make a modest 1% profit each day and never exit a position, your assets could snowball to around $12 million in 250 trading days, and even reach over $140 million in 500 days. However, maintaining such steady daily gains is far from easy.
4. Exponential Returns Are Hard to Sustain
If you begin with $1 million and aim for a 200% return each year, after five years, your portfolio would balloon to over $230 million. However, achieving such consistent high returns over several years is exceptionally difficult and rare.
5. The Power of Long-Term Compounding
If you want to grow $1 million into $10 million within a decade, or even $100 million over two decades, youâd need to achieve an annual return of around 26%. While not impossible, itâs a challenging target that demands a disciplined strategy and careful risk management.
6. Average Down, But Donât Fool Yourself
If you invest $10,000 in a crypto asset at $10 per unit, and the price drops to $5, buying another $10,000 would lower your average cost to around $6.67, not $7.50 as you might intuitively think. This strategy can help, but itâs important to stay realistic about your cost basis.
7. Profit and Hold for FreeâBut Stay Cautious
If your $1 million investment yields a 10% profit, selling off enough to cover your initial capital allows you to hold the remaining position "risk-free." In reality, leaving a portion of $100,000 worth of tokens in the market might give you peace of mind, but if that same asset drops by 50%, you're still exposed to significant losses.
8. Market Crashes Reveal Strong Assets
Major downturns act as a litmus test for quality projects. If your chosen cryptocurrency barely budges during a market-wide sell-off, this could indicate that large investors or market makers are actively supporting it. Such coins are often worth holding through tough times for potential rewards later on.
Each of these rules carries valuable lessons for cryptocurrency traders, especially those aiming for long-term success. Adapt these principles carefully to your trading style, and always remain vigilant. Crypto is volatile, and discipline is your greatest asset.
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