Four Investment Strategies That Don’t Work

Investing in cryptocurrency is something that nobody should take lightly. Like any investment you should arm yourself with information before you decide to enter into the cryptocurrency market.

Posted by Eric Simon on May 14th, 2018

Let’s begin this with the classic, “I’m not a financial adviser” line. Because… well, I most definitely am not. In fact, my experience in the cryptocurrency market is limited to just over five months, so I am basically a rookie investor.

Why listen to me then? Well, in this (let’s call it half a year) period I have made a PLETHORA of investment mistakes that have taught me a lot about strategy and most importantly, patience. Unfortunately, we live in an impatient society where unrealistic expectations are promulgated by the media and “gurus” looking to make a quick buck. I ATTEMPTED to make a quick buck and failed miserably. But, I made these mistakes so YOU wouldn’t have to! Isn’t that nice of me?

Let’s get to it..

1. Do not invest in something because someone else told you to.

I know this sounds obvious. But, you’d be surprised how big of an influence peer pressure can have on investment decisions. For example, when I first started investing in crypto I would consult my friends (who knew as much as I did if not less) to see what they were holding or buying up. Unfortunately, I was not wise five months ago when my “friend” urged me to invest in a coin at its all time high. I believe he persuaded me with this: “dude you need to get it now before it is worth double in the next couple of weeks.” How am I supposed to ignore that confident rhetoric? This same person also said this particular currency was guaranteed to hit the popular exchange platform, Coinbase, by early February. It never did. In fact, like most cryptos it has decreased in value by about 80% since I bought it. Lesson learned. Do your research before you invest in anything and don’t let your peers think for you.

2. Do not FOMO into an investment decision.

FOMO stands for “Fear of Missing Out.” I used to get FOMO when my friends would go out and party while I was at home working on a term paper. This was an infrequent occurrence because I would usually choose the latter. But, now I get FOMO every day because of the volatility of the cryptocurrency market. In fact, FOMO is the reason I got into Blockchain in the first place in late at the very top of the market in December of 2017 (not a great time to enter).

You know the famous investment strategy: “buy low, sell high?” Well…that’s not what I did. I bought as high as humanly possible and have been bleeding out since. Social media was flooded with content related to Bitcoin and other cryptocurrencies making it seem like everyone was making money besides me! I couldn’t bare to miss out on this wave. Also, I was under the impression that the market was going to keep going up forever. Obviously this is silly assumption, but to my defense all I had witnessed was two straight weeks of ridiculous gains.

So, I kept buying with an internal fear that it would be my only time before the prices got too high to even participate. Again, please use me as an example to understand that FOMO is how SMART investors make money off of YOU. When you are buying… they are selling. Try to ignore your FOMO and distract yourself with something you can actually control. But, where is the fun in that?

3. Do not try to "Ride the Green."

I am embarrassed that I actually used to do this…But first things first, what do I mean by the phrase, “The Green?” It is a reference to the positive 24 hour change on Coinmarketcap that shows a cryptocurrency is increasing in value. Riding “The Green” refers to buying a cryptocurrency that is currently up in value with the intention of catching it on the way up to a higher price.

(I actually haven’t heard this expression before. So, I would like to officially coin it here.)

When I first started in this market I figured investing in projects that were increasing in value was a good move. Again, I thought that something going up would keep going up…It turns out that buying a crypto that is “pumping” means you are getting it at an inflated price. This goes against our “buy low, sell high” motto. Hint: don’t do this.

Catching something on the way up is extremely difficult because you don’t know if it will continue. In my experience, the cryptos I pick tend to reverse the second my buy order is confirmed. So, I decided to reverse my strategy and buy projects that are deep in the “RED,” meaning they have gone down a significant percentage in the last 24 hours. This is a pretty simple investment strategy, but it can be hard to go against your instincts when that green number gives your brain a rush of dopamine that is difficult to ignore.

4. Do not invest in a coin just because it is cheap.

We are conditioned by the success story of Bitcoin, a currency at one point worth less than a dollar. Today, one Bitcoin is just under $9,000. This dramatic price increase has given false hope to investors regarding the other 1600+ currencies out there. If it happened to Bitcoin why can’t it happen to another crypto? This wishful thinking is flawed logic based purely on the false notion that past performance predicts future results.

Also, there is a common fallacy that it is better to have a lot of something than a little of something.

Just because a coin is cheap does not mean it has more room to grow. You need to look at a coin’s total supply to see how high it can potentially rise in a realistic market. Having ten thousand units of a cheap coin is not necessarily better than having a percentage of a more expensive one. Do not compare all other projects to the success of Bitcoin.

Basically, if I would have gone against every single one of my instincts I would be in good shape right now. Use me as an example and don’t make my mistakes. May the force be with you!