Investor's Guide: How to Invest in Cryptocurrency and Minimize Risks. Part 3
A new part of our guide to investing in cryptocurrency. Today we are talking about a trader's resume (portfolio) and his competence: how to analyze them if you are not into cryptocurrencies.
And now we have prepared a checklist for you. It will help you identify the most successful and responsible candidate out of several you have found.
Assessment criteria: the checklist
The personal impression of your manager and friend’s recommendations are definitely important. But figures and facts have to be the most important. Explore a trader's public portfolio on a crypto exchange or other trusted service. Here are the top metrics to look out for:
- Experience: how long a trader has been working.
- What volumes are typical for them.
- How often they trade.
- Results per month.
- Long-distance results (from a year).
- Maximum drawdown.
- Whether tools are used to protect the investor's deposit.
- Whether the trader is trading manually or using algorithms/bots.
- Does it keep public statistics on their results?
- If so, how close they are to the truth: compare publications with the data in the portfolio or in the exchange profile.
How to read metrics
It is important not only to find the indicators but also to interpret them correctly. Here are some values for building on your trader's assessment:
Experience. The bigger, the better. The minimum term is a year.
Trade volumes. Here, too, more is better. Optimal amount: x10 of your deposit.
Frequency. The more often they trade, the more their experience and the more relevant the result in the long run. If they trade once a month and have 10%, it is not as good as if they trade 50 times a day and show 10% as well. Other things being equal, more often means better.
Results per month. Cryptocurrencies are a high-risk investment tool, and profit should fit: higher than in the Buy and hold strategy. In numbers, this is over 5% per month.
Results per year. Here, quality is more important than figures. A trader should show a stable result from month to month, without major loss. Because a sharp rise usually leads to a sharp dip. If you start working with a trader right after his great success, you risk falling into their "bad" moment.
Maximum drawdown. Optimally — drawdown is no more than 20%, and the less, the better. When choosing from two traders, it is worth choosing the one with the least drawdown, even if his profit is lower.
Deposit protection. We will talk about them in a separate article, but for now, just keep in mind: the stop-loss tool speaks in favor of the trader.
Manually or using algorithms. This is a criterion for those who have knowledge about investment in crypto. Most traders use bots that provide the best reaction speed. If an expert uses techniques that require high-speed trading, then they should use bots. It is better when the bots are publicly known and verified.
Statistics. The publicity of the trader, the "promoted" social networks (publics, channels) rather speak in favor of the trader but do not guarantee his conscientiousness.
Are the statistics true? You can establish this if the trader has a public portfolio. For example, in Equite.io, you can see what part of the transaction history is open. You will also compare the reports and screenshots posted on media with the real portfolio.
And the most important advice for everyone who has decided to transfer capital into trust and invest in cryptocurrency with the help of trustees. Use critical thinking! Do not hand over control of your funds to anyone and do not trust any screenshots, tables, or other evidence.
A trader's portfolio on Equite.io is a thing you can trust. After all, the data is taken directly from the crypto exchange. But the result is also worth considering critically and carefully. It can be shown better than it is by hiding part of the story or using your ignorance.
The next part of the Guide will tell you about the ways to insure the deposit and how Equite.io helps investors.