When a person decides to become an investor or a long-term trader it’s important to know that in order to succeed one should pass through several challenges. The main one is a risk to lose money. And diversification is a magical word that every investor should know. We will explain why.
There are two main risk types: the first one is a market risk which depends on the instability of the market price course of the asset. But this type of risk is the one every investor should accept as a given.
And the other risk type is about the overall future of the asset which questions the very existence of this asset. Investing in high-risk assets like high-tech companies and projects from the IT-sphere is called venture investing and it involves a high degree of risk due to various factors. But in spite of the fact that venture investing involves a higher degree of risk, the potential profit is much higher in comparison with investing into more conservative assets.
Another challenge an investor or a long-term trader faces is the market volatility.
For example, if you take a look at the price-chart of Amazon inc. you could see that its price per asset was $2 in July 1997. In December 1999, the price skyrocketed to $110. Then it went down to $5.8 in September 2001 and then it went to its all-time high of $2021.
If we take a look at the crypto market and Bitcoin price history chart, in particular, we can see even more violent rollercoaster with daily volatility up to 30% within a day. Not everyone can act properly seeing such wild price fluctuations fixing profit or loss in a timely manner.
And there’s one important rule every investor should follow: never buy an asset at the moment when it begins to grow wildly in price.
As any asset traded on the exchange goes through several stages and has its uptrend and downtrend, i.e. a movement which can be directed upwards and downwards. So if the asset/project you’re investing in is alive and doing good, but the price doesn’t reflect that, and is currently low-most likely it will return to its highs or even get much higher someday.
Though for some people waiting is a big problem, successful investors are patient. And HODL is their motto. They are ready for a long waiting filling up their bags during the dips if the asset in their opinion is promising and has good upside potential.
Why is diversification important?
In fact, all successful investors and long-term traders consider risk management and the competent distribution of finances across different assets to be extremely important. And they have a certain number of assets in their portfolios which can be divided into several groups.
Each of these groups contains assets with similar features or potential risk/profit ratio level or it may be grouped according to a specific strategy of the investor or trader who carries on the portfolio.
Indeed, sometimes income from one asset can compensate low profits or even losses from another. Therefore, as they say, do not put all your eggs in one basket if you are a smart bird.
Investments should be allocated in proportion to the degree of risk.
Here’s one important tip: never buy an asset with all available funds that you have. You should always have free funds in order to buy more when the price goes lower, thereby improving your average purchase price.
How to diversify on the crypto market.
There are a lot of different cryptocurrencies on the crypto market, but one category of these assets stands beside and is very different from the rest. These are the stable coins.
If you invest in Bitcoin or other cryptocurrencies you face wild market volatility. And in order to hedge against it investing in stable coins like USDQ, which doesn’t have that high volatility and have a stable course, is a great way to diversify your capital. Having a certain amount of USDQ in your portfolio allows you to buy more of your favourite crypto when the market is ‘all red’ and you will also have a safe harbor in case of a sudden downward action or uncertainty mood on the crypto market when the price consolidates and there’s no understanding about in what direction the price may go.
Another great feature of investing into USDQ is that it’s fully backed by Bitcoin, so you can make sure it won’t go anywhere, what we can’t say for sure about those stable coins, which aren’t fully backed.
It’s really important to diversify the assets you’re investing into. You should be patient to be or become a successful investor or a long-term trader and act according to your personal risk management which should be a part of your investing or trading strategy.
If you have any questions about cryptocurrencies or the cases of their usage, don’t hesitate to join our Telegram chats and discuss anything!
https://t.me/PlatinumQjp – for the Japanese speaking community
https://t.me/PlatinumQeng – for the English speaking community
https://t.me/platinumfund – the English news channel
https://t.me/PlatinumJP – the Japanese news channel