Best Strategies for Trading with Small-Cap Cryptos

Handy Tips / 22.04.2021

One of the critical decisions every crypto investor has to make is the coin to include in the portfolio and what to leave. Most traders focus on well-performing coins and coins with a high cap like Bitcoin and a few altcoins, and they have good reasons for these choices.

Such investors view micro-cap cryptocurrency trading as a high-risk venture. They don’t understand that there is an immense potential to make exponentially high profits from such coins since there is room for much growth.

What are Small Cap Cryptos?

Small-cap cryptocurrencies are coins that have a small market capitalization. Generally, it is a market capitalization that falls below $50 million. Many of these altcoins are usually at their initial stages, some being right after an ICO. Investors looking to hold their assets for the long term are generally wary of them for fear of potential scams. Developers can abandon the investment, which could mean a total loss for investors. Also, most of these coins are usually start-ups that still face the risk of failing.

Risk-tolerant investors can still make huge chunks of money within a short time. They can take advantage of being early investors in these coins and leverage the benefit of little competition in analyzing and staking the crypto. However, they need to employ appropriate strategies to reap from these young but profitable crypto assets.

Micro-Cap Crypto Trading Strategies

In a broad sense, crypto trading strategies fall into long-term and short-term strategies. Long-term plans are ideal for traders who are not ready to invest large chunks of money at the same time. Such traders make small continuous crypto investments over a long time while diversifying their portfolios.

Short-term traders, on the other hand, stake their crypto coins for a short period. It could be just a few minutes, hours, or a few days. It is the best trading strategy for micro-cap coins. Short-term strategies allow traders the opportunity to make quick profits within a short time and secure themselves from potential losses. Individual events or some sensitive moves can result in significant price movements in the prices of small-cap coins, which could mean massive gains or losses.

However, investors can still leverage both short-term and long-term strategies depending on the coin’s performance.

Accumulating During Lows

Coins with a small cap usually have low prices, so accumulating them at this stage is a brilliant idea. Traders can then withdraw some of their profits once the prices start to rise, and this could cause the prices to go down and even dip the price below its ICO. Remember you still need to do your homework, so if it is a project you have faith in, you can hodl the coins as the price will eventually rise.

Balanced Portfolio Strategy

Crypto trading can jog your life up and down from the high volatility. However, if you want to maintain some balance, this should be the strategy for you, especially when dealing with high-risk small-cap coins. The balanced portfolio strategy involves purchasing different cryptocurrencies for the same amount. You could have a budget of $1,200 and then look for three other small-cap cryptos and commit $400 in each.

A balanced cryptocurrency portfolio helps investors spread their risks across the portfolio when they are unsure which of the coins will succeed. From their performance, you should know which has the most promising growth potential and possibly focus on it alone.

Of course, this is no guarantee for profits as you could still get stuck with none. For instance, one of the coins could make a 20% profit while the other two assets record 10% losses. The exact opposite could also happen, but essentially, you have the risks spread across the coins you choose.

The Unbalanced Portfolio Strategy

The unbalanced portfolio strategy involves allocating different coins a distinct percentage from the others in your portfolio. You can have three small-cap coins, each with a particular portion of the investment. The amount you allocate for each cryptocurrency depends on how well you think the coin will perform. It is thus essential to do your due diligence. Take your time to go through the whitepaper to understand the coins’ technologies, look at its ICO performance, and the team behind for you to understand the coins’ potential.

If you have three micro-cap cryptocurrencies, you can place 60% for one coin, 25% for your second coin, and 10% for the other asset. Investors who can make predictions correctly can realize their best earnings through this strategy.

Final Word

While there are different strategies traders can use in crypto trading, it would be best to identify one and stick to it. You can try a couple of them before finally deciding your preferred option, although you need to be careful not to lose all your money in the attempts. The crypto market is highly volatile, which is the major drawback about them, although they record different market performances on charts. Therefore, the strategies for one coin may be different for others. Risk tolerant traders interested in small-cap cryptocurrencies can find their ideal strategy from the options above.

Adam is an outgoing young lad who likes adventures and discovering new things. Despite his boring life, he loves writing about cryptocurrencies and exploring what blockchain technology can do for the coming digital world where all adventures will be virtual.