Author: Toon Pierre
Investing in cryptocurrencies is gaining popularity. With over 10,000 different cryptocurrencies existing, many good investment opportunities can be identified. The downside of this large number of tradeable tokens is that there are also many shady crypto projects circulating. This article will help you to learn how to distinguish the viable opportunities from the shady ones by means of a step-by-step guide for beginners.
Understand The Basic Cryptocurrency Concepts
Before investing your first money into crypto, you should be familiar with some basic concepts.
Blockchain: A blockchain is a secure, decentralized digital ledger that records transactions across many computers, making the data transparent and tamper-proof. Its main function is to ensure trust and accuracy without needing a central authority like a bank.
Decentralization: Decentralization means that control is spread out among many people or computers, rather than being held by one central group or authority. This helps ensure fairness and reduces the risk of one party having too much power.
Altcoin: An altcoin refers to any cryptocurrency that is not Bitcoin. Altcoins are often created to improve upon Bitcoin's features, offer new functionalities, or serve specific purposes.
Discover Newly Listed Altcoins
The first step of researching and trading newly listed altcoins is identifying them. Binance helps their users with this step by providing a section on their website where they announce which altcoins will be listed. You can access this information through the following link: Binance – New Cryptocurrency Listing
Research The Altcoins You Have Found
Thorough research consists of analyzing different aspects of the corresponding coin. All these aspects complement each other and contribute to the identification of the most reliable investment opportunities.
Explore The Altcoin’s Project
To do this, consult the project its whitepaper. This is a legal document that contains the following information:
Use Case: The main problem that the project tries to solve or its specific purpose (for example: improve the transaction time of traditional blockchains). The better the solution or purpose is, the higher the reliability of the coin.
Tokenomics: basic plan of how the altcoins will be distributed between the founders and the community and whether its supply is limited or unlimited.
Lock-up Period: how long the founders will lock up their tokens before they can access them. In general, a longer lock-up period can be seen as a signal of longer-term commitment from the founders into the project.
Founding Team: investors should screen the background of the founding team to control their reliability.
Roadmap: contains the project’s major plans and timeline. The timely accomplishment of prior plans can be seen as a signal of seriousness.
Explore The Altcoin’s Community
Since decentralization is the core of altcoins, its community is a key factor in its success. Therefore, you should try to find altcoins with a large sized community or a rapid-growing community.
Analyze The Market Dynamics And Performance
Before investing your money, you should pay attention to market trends, news events, and regulatory developments that may impact altcoin prices and market sentiment. For example: a good investment strategy in a bullish market differs from one in a bearish market.
Technical Analysis
Investment Plan
Technical analysis is a very good way to determine a good price to invest in a specific altcoin. This type of analysis thus complements the fundamental analysis. The price of an altcoin often fluctuates between a lower bound (support level) and an upper bound (resistance level).
A support level is a price point where the market price does not seem to fall below. Every time the market price drops to this price level, it bounces of and start to rise again. In other words, it’s the price level where buying interest is strong enough to prevent the price from falling further.
The resistance level is the counterpart of the support level. It’s a price point where the market price does not seem to rise above.
Due to this, investing your money in the altcoin when its market price is near the support level and selling it when its price is near the resistance level is a great investment plan.
Managing Risk
Although a market follows the same trends most of the time, a deviation from this trend is not impossible. Therefore, it’s a good idea to place a stop loss order. This is a predetermined instruction to sell a coin when its price falls to a specified level. In this way, you can only lose the difference between the price level of the stop loss order and the price at which you bought the coin. It can be seen as a method to minimize and manage your risk. A good price level for your stop loss order would be 10% below the price at which you bought the coin.
Additional Tip
To wrap it up, I would like to give two additional tips. Namely, be patient and control your emotions when trading. Since the crypto market is quiet volatile, this is not always very easy, but if you did proper research and if you have a good investment plan, stick to it and don’t change it impulsively.
Conclusion
Investing in altcoins is not a zero-risk activity but its risk can be drastically decreased by conducting thorough research and by determining a good investment strategy. Firstly, get familiar with general cryptocurrency concepts. Secondly, find newly listed altcoins and conduct some research on its project, its community and the market trends. Lastly, complement your research with a technical analysis to identify a good entry and exit price and manage your risk by placing a stop loss order.
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