Trading in financial markets can be a profitable but also dangerous endeavor. It requires knowledge, skills, and experience no matter the market traders are employing.
Of course, gaining experience could be related to actually registering losses but it could also help to learn from traders with a long history in the field. CryptoPotato recently had the chance to interview one such trader – Chris Dunn.
Dunn is among the first YouTubers specialized in the field of Bitcoin and cryptocurrency trading, but he’s also sharing with his over 200,000 subscribers a lot of lessons regarding traditional financial markets. In case you missed the full interview, or you are too lazy, here are the highlights and takeaways:
Diversification Is Key
The topic of diversification, also known as “don’t put all of your eggs in the same basket,” has been overly discussed when it comes down to any sort of investing.
Putting all of your funds into one (or very few) assets might be devastating in case the price takes a serious hit. In an event like this, the entire portfolio will suffer, and many traders won’t be able to recover from such a hit.
Diversification means spreading the risk between numerous assets.
“I think it’s extremely dangerous if you don’t diversify. Even if you believe in Bitcoin and crypto, it’s just very risky to put all of your wealth only in crypto.
I’m a huge proponent of diversifying. I pull hard profits out of the crypto market all the time and invest in gold, invest in real estate, and invest in stocks.” – Dunn concluded.
Do Your Own Thorough Research To Find The Next Amazon
The cryptocurrency field is rather young. While the stock market has been existed for over a century, digital assets emerged with Bitcoin’s creation in 2009 and are yet to see mass adoption, despite the 2017 interest boom.
As such, Dunn believes that the field will experience significant growth in the upcoming years and investors should do comprehensive research to find the most profitable projects:
“I think there are projects ran by companies that are going to be like Amazon in 20 years from now (Dunn refers to AMZN stock). I think people have to be more patient and selective and make sure they’re getting in the right projects.”
Which Cryptos Have a Higher Chance To Break ATH?
Arguably the most important period for cryptocurrencies came in late 2017 and early 2018. Market prices began accelerating at a rapid pace and ultimately attracted the attention of retail investors and mass media. It later became known as the 2017 crypto bubble, as prices crumbled down in the following months. Leading altcoins such as Ethereum and Ripple saw massive decreases of over 90% dumps in just one year.
“There’s a significant difference between the projects that experienced this turbulent time and those who didn’t, which could play a role in their future price performance.
I kind of differentiate between coins that went through the 2017 bubble and coins that were born after that (i.e. BNB and Tezos). Such coins like Ethereum and Ripple have a lot of bag holders from people that bought the highs. This creates a lot of selling pressure.”
Buy The Lows (Or Buy When Everyone Is Selling)
There’s a famous saying in the investment field that advises people to “buy low, sell high.” To buy the low means to purchase the asset while the price is depreciating, and not the other way around, which is typically what the majority does.
Yet, it is not as simple to do, as it sounds. Human nature and emotions are susceptible to panic which could urge people to sell assets when prices are plunging and to FOMO (fear of missing out) in when they are skyrocketing. Dunn strongly believes that accumulating BTC or any other asset that the investors believe in while prices are dropping is vital for long-term success:
“After a bubble pops in Bitcoin (i.e. 2014 and 2018) and prices are depressed, I accumulate as many bitcoins as I can for cold storage. I tuck it away, and don’t really think about the rice.”
Dunn also gave a compelling example from the mid-March Black Thursday when most assets plunged hard. Bitcoin lost up to 50% of its value at some point. Yet, Dunn said that he and his team “bought the lows” during that panic drop as well.
Risk Management – Almost No One Gets Rich Quickly
According to Dunn, risk management is “the most important thing. A lot of traders get caught up, and most of them lose money because they do not think about the risk. They just think about how they can get rich quick.”
To accomplish better risk management, investors should also employ a famous narrative – to buy using funds they can afford to lose. Meaning that if the price plunges, it would not disrupt the traders’ plan and rush him to panic sell while registering a massive loss.
Blame Yourself, and Only Yourself
One of the most common mistakes newbies in trading tend to do is relying on other sources and trying to hold someone else accountable for their decisions:
“A lot of newbies come in, and they buy something because they watched a YouTube video or listened to some guy on CNBC, and then they blame other people when they lose money. If you want to be a real investor, you have to take 100% responsibility for all the decisions that you make.”