Investment and Trading Baskets - Part 2 of Best Practices

Having both a trading and investment allocation, called a trading basket, for an asset provides a long-term holding with the flexibility of gaining shorter term trading profits.   An investment basket offers the prospects of a steady long-term gains with reduced risk.    The trading basket gives you the potential for higher gains than just holding an asset long term.

Step 1 – Funding your crypto investment basket

The initial funding of your crypto investment should occur after you have preformed the necessary fundamental research about the blockchain and individual cryptos you want to invest in.   A recommended way to enter is to use the Dollar Cost Averaging method described in a section of the Quantify Crypto trading tips   https://quantifycrypto.com/info/trading-tips

The investment basket contains funds allocated into an asset for the long term. The plan is to buy and hold these funds for a 1 to 3+ year time frame, or until there is a significant profit with this investment. In cryptocurrency the term "HODL" (Hold On for Dear Life) is often used for this. This is a best practice to avoid emotional trading.

A key point is you must follow rules you have created for yourself for this investment allocation.

Step 2 - Funding your crypto trading basket(s)

There are multiple ways to create the allocation for your trading basket.

While fundamental analysis plays the most important role for your investment basket, your trading basket needs to use a trading strategy.   You can have multiple trading baskets for multiple assets and different trading strategies can be applied.

The trading basket includes funds used for short to medium term trades to create greater returns than just holding onto an asset. Bitcoin, Ethereum and other crypto assets tend to have large price swings which can be used for a buy low / sell high trading method.

Step 3 – Taking profits

The purpose of the trading basket is to have a buy low / sell high mentality.   Its critically important to take profits when they occur.   A mistake many make is selling the full allocation at the same time.   It is best having mindset to sell portions of the initial trade transaction.   Here is an example:

Day 1 – Buy $1,000 worth of Bitcoin.

Day 15% profit in Bitcoin – With Bitcoin up 15% since the Day 1 purchase, sell 30% of the Bitcoin from the day 1 purchase.    After this transaction there is $345 in fiat, $805 in Bitcoin.    This transaction reduces my risk, Bitcoin can go down 15% from this level and I will still have a profit.   Since I have sold some, it allows me to be more aggressive and hold on a bit longer.   If the Bitcoin price continues higher (say 10 - 15% more)  another 30% profit sale can be made.

Step 4 – Buying the dips

Day 20% drop in the Bitcoin price - Since the day 1 purchase in Bitcoin, it is now trading below the purchase price.   The good news is Bitcoin is off its lows (hypothetically for this example the bottom was down 25%) and has had a stable price for multiple days and is slowly starting to go up.   Additionally, the portfolio is still worth over $1,000 since I did take profits.

Use the $287.5 amount from the Bitcoin profit sale from step 3 and buy the dip.  After the purchase the account now has more Satoshi than the Day 1 purchase.

Bitcoin continues to rebound, after a 15% price increase sell another 30% for profit taking

Step 5

Repeat

Quantify Crypto provides real time technical analysis to support your trading decisions. We have the fastest live price feed of all cryptocurrency informational platform. Our proprietary trend algorithm calculates the predicted direction of future price moves. It is specifically tailored for the cryptocurrency market. Our state-of-the-art displays are designed to provide maximum amount of significant data on a single screen.

None of this is meant to be financial advice and I do not have any financial expertise. Although I worked at the New York Stock Exchange for over 23 years, it was as a developer supporting computer systems, not as a stock trader.

Full discloser: I do own Bitcoin and other Altcoins.