Cryptocurrency has emerged as a highly attractive investment channel, drawing numerous participants, especially in Vietnam, which boasts the highest Crypto Adoption rate globally. While the potential for high returns in crypto is significant, it also comes with greater risks compared to other financial markets. Crypto can dramatically change your financial status, but it can also lead to substantial losses.

To succeed in this market, investors need to be patient, knowledgeable, and, most importantly, adept at capital management. So, how can you effectively manage your capital in crypto investments? Let’s explore this in today’s article!

What is Capital Management?

Capital management means controlling the amount of money in your account, preventing significant losses while also maintaining profit levels during transactions. The primary goal of capital management is to ensure your survival in the market.

Streamlining Your Investment Portfolio

Your portfolio should be highly streamlined to focus and closely monitor the projects you’re holding. Avoid spreading your investments too thin, which can deplete your limited resources (money, time, effort), and prevent you from falling into the “grass is greener” syndrome, causing you to constantly switch investments.

An optimal portfolio, in my opinion, includes two long-term holdings, a maximum of three medium- and short-term holdings, a portion of capital for short-term trades, and a crucial reserve of USDT equivalent to half the total volume of your medium- and short-term holdings. For example, if the total volume of your medium- and short-term holdings is $1,000, the minimum USDT reserve should be $500.

Entry – Positioning Your Investment

The most critical aspect of investing is the entry point, and the next most important is also the entry point. Evaluating a project’s potential is a matter of expertise and research, but investing is about the entry point, capital allocation, and exit strategy. A good entry point is often at the beginning of a new growth cycle for a coin and should coincide with a new growth cycle in the overall market. Learning technical analysis (TA) is also beneficial for determining the best entry points to optimize profits.

The Mindset of Holding USDT Reserves

USDT is considered a stablecoin that doesn’t generate interest. This mindset leads many to hastily invest all their capital, which is a significant mistake. USDT should be seen as holding capital with the highest likelihood of generating returns. Never fear missing out on an opportunity; fear losing money more. There are plenty of opportunities in the market.

For example, holding $1,500 without earning any interest for a month is still valuable. If the market crashes, you can use that $1,500 to buy the dip on solid coins like BNB or ETH, where the chances of profit are high (avoid speculative coins). In this way, $1,500 isn’t just a stablecoin; it’s an investment in waiting for market fluctuations.

This USDT reserve isn’t for Dollar-Cost Averaging (DCA) on any investment. When the market crashes, and your holdings suffer, having reserve capital to capitalize on a 20%-30% rebound helps stabilize your mindset. In summary, holding a USDT reserve is a powerful strategy.

Dollar-Cost Averaging (DCA) in Capital Allocation

DCA should be applied to coins like BTC, BNB, or ETH, or coins trending upwards in the market. For a planned investment of $1,000, I typically allocate as follows:

• First order: $200
• Second DCA order: $300 when the price drops 30%
• Final DCA order: $500 when the price drops 50%

If the price drops another 20% after these DCA orders, it’s best to cut your losses. A common mistake is planning $1,000 for an investment and then adding an unspecified amount for DCA, leading to unlimited spending while capital is limited. Remember, the DCA capital should be separate from the USDT reserve mentioned earlier.

Handling Losses

When facing losses, the remaining USDT after cutting losses should be allocated in one of two ways:

• Add it to the USDT reserve to wait for deep market dumps and buy solid rebounds.
• Use it to increase long-term coin holdings that you value at good prices.

When you incur losses, have a plan to address them. For profits, there’s nothing more to discuss. The key point is to maintain a highly streamlined portfolio, ideally not holding more than five coins plus a reserve of stablecoins.

Key Points in Capital Management

Flexibility is essential. Don’t stubbornly hold on to investments. Most of you are not professional investors and might think knowledge is all you need, but investing is also a psychological battle. I’ve discussed the importance of capital management and the USDT reserve, so now I’ll share strategies for entering positions to maintain psychological stability.

Align your investments with market trends and cash flows. This ensures that even if your entry isn’t perfect, the trend’s momentum can help recover your position. Always adhere to the discipline of cutting losses when prices close outside the trend, especially in larger timeframes like H4 and D1.

Correctly timing your entries improves the value of your DCA orders. The idea is to make an incorrect initial entry but have a higher return rate than making a correct initial entry with a lower return. This counterintuitive thinking helps maintain a calm mindset, reducing the fear of entering positions.

Discipline in capital allocation and position entry, along with strict adherence to trends, minimizes pressure from market volatility. The key is having the right mindset, perspective, and strategies to stabilize your psychology, creating a personal guide in this market.

What to Do When You Lose Money?

Losing money is painful and can happen when you’re overly optimistic about your investments. Here are some common causes of losses and tips to minimize them:

• Lack of knowledge and experience: Success in stock or real estate markets doesn’t guarantee success in crypto.
• All-in strategy: Avoid putting all your eggs in one basket. Diversify your investments to mitigate risks.
• Lack of discipline: Stick to your investment plan and follow established rules.
• Impatience: Don’t rush into investments. Wait for the right opportunities.
• Not cashing out profits: Prioritize capital preservation during downtrends.

Source: Tradecoinvn