How can professional crypto investors elevate their strategies for long-term benefits?

Navigating the challenges of the crypto market becomes more challenging as regulations change, but its potential rises due to technological developments. Smart contract innovations, interoperability between blockchains, and the introduction of AI push the crypto industry towards worldwide adoption, making it more accessible and available for the unbanked.

While developers, miners, and validators are the backbone of the ecosystem, ensuring systems operate, and networks are protected from attacks, investors also have a fundamental role. Short-term investors help support projects like Trump Coin, while long-term investors work towards providing more stability in the market.

However, after years of investing in crypto, it may seem like nothing works anymore to add something new to your portfolio. So, let’s see how you can advance your investing strategies for the future.

Overcoming biases

Most traders are prone to cognitive biases, which are known as errors in thinking due to emotions or external influences. Unfortunately, recognizing and eliminating biases can be difficult, but it is necessary to improve your trading. Common biases include:

The confirmation bias happens when you focus on information that confirms your pre-existing beliefs. Therefore, it compels you to selectively collect and interpret data that supports your ideas, leading to overconfidence;
The loss aversion bias triggers you to prefer avoiding losses over earning gains due to past experiences. This makes you hold onto inefficient investments or sell early to prevent losses;
The anchoring bias happens when you rely on familiar references and information in the face of uncertainty rather than expand them. Hence, you may be prone to making decisions based on irrelevant data at the moment;

Following the herd, avoiding conducting a comprehensive analysis, and believing you know it all are all part of trading biases that affect users. When you become aware of them, you can educate yourself and reflect on your tendencies. Self-assessment is the best approach for evaluating your strategies, but seeking external feedback by engaging in open and constructive discussions is ideal.

Rebalancing your portfolio

Rebalancing is necessary as the value of the assets you invest in changes over time. You should adjust it based on risk tolerance and strategic improvements. By adjusting the weight or percentage of an asset, you decrease the portfolio's risk profile, improve diversification, and increase potential returns.

There’s no one-size-fits-all method for rebalancing, so you could try:

Threshold rebalancing allows you to set limits that let the assets deviate, so you rebalance them when they go past a threshold from the predefined terms;
Periodic rebalancing means reassessing the portfolio at a specific time. Ideally, you should rebalance at least once a year, but this can change depending on market conditions;
Constant Proportion Portfolio Insurance (CPPI) means selling strong assets into cash or stablecoins so you can then benefit from lower-priced cryptocurrencies or volatility;

Usually, a balanced long-term portfolio might look like 30% A, 40% B, and 30% C, but when the value of an asset rises or falls, you could split it into 50% A, 30% B, and 20% C. this change allows you to reach balance even when some assets are underperforming.

Managing liquidity

When you struggle to buy a financial asset due to low trading volume, the situation might lead to prices that don’t reflect the true value of the cryptocurrency, which is what happens when there’s low liquidity on the market. On the other hand, high liquidity means more users are active, so there’s less price volatility, and transactions are smoother.

If there’s enough liquidity on the market, investors can enter or exit without much difficulty, as assets are stabler and less volatile. Therefore, you must measure liquidity management before taking the next step with indicators such as:

The Bid-Ask Spread is the difference between the highest price a buyer offers and the lowest price the seller accepts. Narrow spreads mean high-liquid markets, while widespread rates show low liquidity;
The Order Book Depth showcases how many people want to buy or sell. A deep order book is given by lots of orders on both sides, which means you can trade without triggering market prices;
Volume Metrics help understand how much of an asset is bought and sold over time. A high volume means the market is lucrative, making it easier than usual to buy or sell an asset;

Analyzing investor sentiment

Sentiment analysis is important for investors because it considers the public perceptions of crypto assets based on social media and news coverage. Analyzing it will ensure you understand how investors feel about an asset or the entire market, which can indicate whether the market is going to be bullish or bearish.

You can perform your own crypto market analysis by:

Gathering data from social media channels and communities, as well as mainstream financial news outlets and crypto-focused blogs;
Preprocessing the data by using tools to remove inefficient details and insert only the highest-value information;
Analyzing the data based on sentiment polarity, shifting trends, and influential voices that might interfere with sentiment scores;
Approaching data visualization through charts and graphs that help you better identify correlations between sentiment and market behavior;

The Fear and Greed Index is some of the most used indicators of how investors feel about the crypto market. Extreme fear is measured on a scale from 0 to 24, meaning prices will go down, whereas extreme greed stands between 75 and 100, so prices will go up. The index combines data from various sources, such as trading volumes, social media mood, and market volatility. Other values to consider include sentiment analysis APIs, such as Google Trends, and on-chain analysis, which considers transaction volume and wallet activity.

Are you ready to improve your investing strategy?

Investing in cryptocurrencies can be a wild ride, but you can master it through continuous striving for improvement. As a professional, you should be able to overcome common cognitive biases that hinder progress so you can rebalance your portfolio adequately without interior influences. At the same time, mastering liquidity analysis and learning how to read investor sentiment through indices are recommended strategies to up your income and lower risks.