Investing in the financial markets is a fascinating intellectual pursuit. In recent times we have seen a rise in the number of investors in the market for cryptocurrencies than any other financial assets. Stocks, bonds and options traders are increasingly making moves into the market for cryptos and the list keeps soaring as Educationists, Doctors and other labour professionals get increase desire to invest in cryptos. As the workplace becomes routinely boring and more and more individuals increase their search for freedom, the financial markets is sure to be the desired destination for the majority of the working world labour population migrants.
The markets offer enormous freedom to live and work anywhere in the world and be independent from routine and never answer to a boss.
Additionally, cost of living in our society today keeps soaring and the quest to secure additional [passive] income has brought many workers, labour professionals, family men and individuals into the financial markets.
In recent times, the first point destination of most of the individuals seeking investment ventures other than the traditional investment modules of stocks, Government treasury and real estate has been the market for cryptos. Major crypto instruments available on most brokers trading platform includes: Bitcoin, Ethereum, Litecoin and DashBitcoin. These cryptos are usually traded against the U.S Dollar or the Euro on most platforms and Bitcoin remains the crypto with the leading levels of liquidity.
More on Crytocurrencies: Bitcoin, Are Ghanaians interested?
Looking back to April 2012, Bitcoin priced around $5.00 and by April 2013 it had rallied to around $245.15. It then plunged to around $76.13 in July 2013. As at now Bitcoin is priced around $8130.86, which implies that 1BTC is equivalent to 8130.86U.S Dollars.
If you and I had bought one standard lot unit worth of Bitcoin in about five years ago, we will be averaging 81,300 U.S Dollars. Many folks will shake their feet off at their employers and quit their job for this.
Recently, while in a conversation with a colleague he said to me ‘I will invest my cash in Bitcoin than to invest it in any other financial instrument’. The great desire for most retail investors to invest in Bitcoin and other cryptocurrencies has made it necessary for experts and advisors to channel much financial education to both new and existing retail investors so they do not wind up somewhere they wouldn’t want to be. Many investment advisory firms will charge you some billable hours before they give you a hint of information. Those who do not educate themselves well enough to settle on their investment objectives coupled with the right expectations will wind up somewhere they never wanted to be.
For my generosity, you may take these few hints as you consider venturing into the financial markets and more specifically investment in cryptocurrencies:
Rule Number One: the market crowd and you. Do not follow the crowd.
The market is a loosely organized crowd whose members bet that prices will rise and fall. Each price represents the consensus of the crowd at the moment of transaction. The crowd keeps swinging from indifference to optimism and from hope to fear – you ensure your survival when you think and act as an individual.
I am particularly concerned about the long bull market in cryptocurrencies. Everybody seem to be buying and the market keeps rallying. I ask myself “when will they start selling for the market to fall?”
It is essential that retail investors in crypto markets do not get sucked into mass bullish mentality without any objective thinking and planning. I particularly find what is happening in the crypto markets similar to the Tulip mania in Holland in 1634 and the South Seas investment bubble in England in 1720. The tulip hysteria began as a bull market in tulip bulbs. Markets rallied for months and years and the long bull market convinced the prosperous Dutch that tulip would continue to go high. Many of them abandoned their businesses to grow tulips, trade them or become tulip brokers. During those times, banks accepted tulips as collateral and market speculators profited.
Finally, the mania collapsed in waves of panic selling leaving many people destitute and the whole nation shocked! Charles Mackey, a Scottish legal practitioner at that time sighed “men go mad in crowds, and they come back to their senses slowly and one by one”. You do not want this to happen to you?
Rule Number Two: Mange Your Risk Properly.
Investing in the financial markets is similar to thrilling and dangerous sporting activities like sky-diving, hiking and bullfight. This is partly why it is seen as a male dominated endeavor. Approximately 95% of retail investors are men. Men are drawn to more risky activities than women in our society. You can succeed in the markets only when you handle it as a serious intellectual pursuit. To help ensure success, practice defensive money management. A good investor watches his capital like the way a professional accountant watches his zeros.
Rule number three: follow nothing, but price. Price seem to say to traders, “follow me and I will show you the way to riches”. Price is essentially the basic variable that all investors look at and analyse to make investment decisions. Do not buy or sell just because you heard a market commentary from an analyst or read an article from an expert telling you to buy or to sell. The money in your account is yours, therefore do your own objective analysis and enter the markets only when you are particularly sure of its next direction.
Legendary trader and investor Paul Tudor Jones asserts “your job is to buy what goes up and to sell what goes down. The whole world is simply nothing more than a flow chart for capital”.
Do not worry your head over market fundamentals and other sources of noise, in that all market information, news and events are essentially discounted in price.
To your success!
If you have found these pieces of information and advice helpful, I would love to hear from you. Hit me up and let’s talk investment!
By E.O. ESSIEN
E.O Essien is an Associate Financial Economists, currency trader, trainer and private trading coach. You can reach him via email at firstname.lastname@example.org or on +233240080104/+233203656160.