Trader’s investment portfolio: where to start?

Published 17 February 2021


Crypto trading is not only a game with your intuition but also a clear approach, which consists of qualitative analysis and understanding of the market.

Of course, the first thing a novice trader is faced with is how to create an investment portfolio.

Portfolio investing is great for those who don’t want to spend a lot of time, as it is based on the Buy&Hold strategy. However, you shouldn’t limit your capabilities only to BTC and ETH coins because other assets will be able to provoke the growth of your investments much faster. It remains to competently compose your portfolio and study the basic rules of its’ effective management.

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Determination of profitability

All crypto investors have one goal — to increase their income. However, a beginner should immediately learn how to calculate profitability.

Crypto traders most often use several options — taking profit in fiat money, in Bitcoin, or in Ethereum.

Profit fixation in fiat

Those investors who are of the opinion that the crypto economy is still underdeveloped choose to fix their income in fiat currencies. It’s also ok to use stablecoins, for example, USDT. This stablecoin is pegged to the dollar and is great for minimizing the risks of a volatile crypto market.

However, it should be understood that in this case, the profit for the main coin, BTC, should be higher than for the entire investment altcoins’ portfolio. Thus, Bitcoin will be the benchmark for profitability.

Profit fixation in BTC

If your trading strategy is based on taking profit in Bitcoin, then the main task will be to get more of these coins when trading other digital assets. So, BTC will serve as a means for capital accumulation.

Profit fixation in ETH

With this approach, not only Ethereum can be used, but also another altcoin. Your chosen asset will be used for the accumulation of deposits. This option is rarely used by traders, but this may change if Bitcoin loses its steady indicator of market dominance.

At the same time, it’s worth remembering that you can choose any currency to fix your income, but the level of your profit should be calculated even at the stage of compiling your investment portfolio. For example, you can define income +$4000 in fiat money, +70% in BTC, and +10% in ETH.

When this level is reached, the profit should be fixed, and this portfolio closed.

Risk management and diversification

It’s no secret that whoever takes more risks has a better chance of getting higher profits. At the same time, the trader who minimizes risks has fewer opportunities to lose his initial investment.

This is why diversification is a great way to reduce risk. Thanks to this method, the assets can be divided into several groups:

  • high-risk assets (Top 100 coins);
  • low-risk assets (Top 10 coins);
  • medium-risk assets (Top 30 coins).

Based on the classification of assets by capitalization, several main types of portfolios can be distinguished: conservative, balanced, and high-risk.

The most popular is a balanced portfolio, which includes up to 20 coins, of which 25% are low-risk, 50% are medium-risk, and 25% are high-risk.

Regardless of which type of portfolio you choose, you need to remember that the share in Bitcoin should be 25%-50%.

More experienced investors also prefer more complex diversification, which involves distributing all capital across multiple portfolios.

Assets’ collection

In order for your strategy to demonstrate positive dynamics, the portfolio should contain only assets with good potential.

When choosing assets, first of all, you should pay attention to their liquidity.

This indicator can be used to determine the interest in the coin/token on the part of the crypto community.

It is best to choose highly liquid assets that had the maximum trading volume in the previous month.

Defining the investment horizon

It’s also necessary to determine the investment horizon at the stage of portfolio formation. It can be as long as several days or even decades.

To determine your investment horizon, you need to take into account your trading psychology, the level of possible risk, and expected profit.

For example, funs of short-term deals and aggressive trading have the shortest investment horizon. With this market behavior, the best solution would be to use from 5% to 10% of your assets during the trading day and also don’t forget about stop-losses to minimize possible drawdowns.

Portfolio rebalancing

To effectively manage your portfolio, you need to think over a plan to rebalance it in advance.

To maintain the percentage of your chosen assets, you should maintain it by selling or buying the corresponding coins until the moment when their share returns to the initial position.

Also, you can always change the number of those assets that bring more profit and reduce the part of those that turned out to be low profitable.

A few final words

Portfolio investing can initially seem difficult for a novice trader. However, it should be understood that the full perception of this process will provide you with the opportunity to achieve your crypto goals.

We want to give you some tips to help you realize your individual investment portfolio:

  • be careful with diversification, as a large number of coins require more attention, and you may lose sight of some indicators on an active market;
  • pay attention not only to the popular assets. Use various analysis methods to find new altcoins with good potential;
  • before investing in a project, study all its details and understand how it works;
  • stick to your plan and finish portfolio work after you reach your goals.

There is no one universal recipe that will step by step describe your entire trader’s path. Your investment portfolio is an individual display of your market perception, and only you can bring it to the “green field”.

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