When it comes to building wealth, a profitable investment is the final piece of any investor’s financial puzzle. These investments can range from various market-related instruments like stocks and bonds to more rapidly rising instruments like digital assets. However, one thing is clear: whether an investor decides to invest in traditional instruments like stocks or otherwise, the road to wealth begins with building a successful portfolio. Within the cryptocurrency industry, especially in countries like Australia, investors understand that a successful crypto trading portfolio is hinged on several factors, like a well-established Australian crypto exchange. This article will look at how investors can build a successful crypto trading portfolio.
What is a Crypto Portfolio?
A crypto portfolio is a collection of digital assets that an investor owns. This portfolio will usually comprise digital coins, including altcoins and other financial products. In a sense, it is similar to a traditional investment portfolio; however, digital assets and products remain the bane of such a portfolio. There are certain types of cryptocurrencies that an investor can hold. These cryptocurrencies ensure that such an investor’s portfolio is diversified. These range from payment coins to stablecoins, security tokens, utility tokens, and even governance tokens. But how can an investor ensure that his portfolio is balanced to ensure a sustainable road to wealth?
How to Build a Well-Balanced Crypto Portfolio?
There are some general rules that a crypto investor should consider when trying to create a well-balanced portfolio. These include:
Split Your Portfolio
It is advisable to split your portfolio with high, medium, and low-risk investments and give each investment class an appropriate balance in your portfolio. This means that a portfolio that contains a large portion of high-risk investments is not balanced. As much as the chances of profits are high, the risk of huge losses is also high. Therefore, you must create a risk profile that suits your investment appetite. For instance, you can diversify your portfolio based on the market cap.
In light of this, there are three major categories:
- Large-Cap: Digital assets with a market capitalization above $10 billion are usually categorized under this section. These assets are regarded as stable assets against mid or small-cap crypto tokens. This is because they are known to exhibit lower levels of fluctuation.
- Mid-Cap: Cryptocurrencies that fall within this range have a market capitalization of between $1 billion and $10 billion. Although considered riskier than large-cap assets, they promise higher growth potential than low or small-cap assets.
- Low-Cap: Their market capitalization is less than $1 billion for this section of assets. Their volatility is very high, and they are considered risky investments as they are very sensitive to price fluctuations.
Hold Stable Coins
As we earlier noted, there are different types of tokens. However, every investor should hold stablecoins. These stablecoins will help to provide liquidity to the portfolio. For many DeFi platforms, stablecoins are key to exiting and entering market positions easily. A stablecoin, such as the USDT, tries to track an underlying asset. This underlying asset may be a fiat currency or a precious metal. It should be noted, however, that while they provide stability and liquidity, they don’t necessarily provide large returns to your portfolio.
Establish Entry and Exit Rules
Creating a decent crypto portfolio entails establishing clear-cut entry and exit rules when trading on the markets. Setting such rules will help you to make objective emotions, keeping your emotions in check. For instance, you might enter a trade when the cryptocurrency breaks a certain resistance level. You may also exit the market based on certain technical signals, like a reversal pattern on a chart.
Manage your Money
As cliche as it sounds, money management is a vital yet neglected part of crypto trading. Good money management implies a clear understanding of how much to invest and the attached risks to such investments. This step not only helps you —the investor— to maximize your gains but further aids in navigating through difficult trading periods in the market, ultimately giving you a robust crypto portfolio that is sustainable and durable. There are various money management techniques that Australian crypto investors can use to remain in the game. These include:
- Position sizing: Position sizing determines how much capital you want to allocate to a single trade. One common approach is to risk 1-2% of your entire capital on a single trade.
- Stop-loss and take-profit orders: Setting such orders automatically sells your assets at a predetermined price, minimizing potential losses. Similarly, take-profits secure your profits by selling assets when they reach a certain price level.
Do Your Research
Finally, to build a successful crypto portfolio, you must conduct your due diligence before buying any class of asset. While you conduct your research, it is also important to track the movement of your holdings. For instance, price trackers like CoinMarketCap and CoinGecko help investors track their assets, whether they are on-the-go or otherwise.
Constantly Review and Adapt
When building a successful crypto portfolio, your trading patterns and practices must be flexible to accommodate necessary changes when the need arises. As with the prior step, you must always stay informed about market trends and news. Further, your emotional state may affect your trading capability. Therefore, you must be able to reassess your trading plan and, ultimately, your crypto portfolio.
The Road to Wealth
Balancing a crypto portfolio is no different from a traditional investment portfolio and, as such, comprises no special strategy as a traditional portfolio would require. Further, while diversification remains one of the key indices in maintaining a successful portfolio, it is important to understand the pros and cons of such a strategy. Above all, every investor must remain diligent in conducting extensive research and keeping up with the ever-dynamic and rapidly changing cryptocurrency market.
