In cryptocurrency investor lingo, there are few traits that are more desirable than having “diamond hands.” Unlike the “paper-handed” investors who ditch their coins at the first sign of a downturn, thereby missing out on later gains, having diamond hands implies being willing to hold on to your investments through thick and thin until you’re able to take a profit, typically on the schedule of your choosing.
In many ways, in the cryptocurrency market, investing for the long term is synonymous with having diamond hands, and it can indeed lead to great returns. But the fact of the matter is that having diamond hands requires emotional fortitude that’s difficult to develop. Here are four strategies I use to build up and maintain my diamond hands that you may find useful.
1. Only invest money that you are willing to light on fire today
It is standard investing wisdom to suggest that one should not invest in the stock market using money that one could need within the next few years. The phrasing of that wisdom somewhat implies that you’ll probably eventually at least get your money back, but that it might be inconvenient or impossible to do so at various points between pressing “buy” and when the profits show up in your account.
But if you want to have diamond hands, that perspective isn’t enough. A stock could crash by 20% in a day, or fall by 50% during a bear market. Although it is possible for a company to go bankrupt, on average it probably won’t happen to multiple companies you own shares of at the same time if you’re sufficiently diversified.
In contrast, a cryptocurrency can crash 90% in a day, or fall to zero during a prolonged bear market, even if it’s one of the leaders. Look at this Solana (CRYPTO: SOL) price chart.
Declines aside, new coins going to zero is something that happens constantly. So simply telling yourself that you’ll get your money back in a few years isn’t enough to be convincing, because the odds of that never happening are very real.
Therefore, one core strategy to having diamond hands is to only invest money in cryptocurrency that you are literally willing to light on fire today. As soon as you swap your cash into the crypto ecosystem, you must be fully and unflappably comfortable with the idea that it’s gone forever.
There is a chance you will be able to withdraw a larger amount of money at a later date, under the right circumstances, and with the right decisions made on your part in the interim. But until you master the psychology of accepting that you are burning it, holding on to your coins through volatility will be incredibly difficult.
2. Put on your horse blinders
Horses sometimes need a bit of help staying on track, as the world is filled with distractions, some of which can seem incredibly frightening in the moment despite actually being benign. So, humans block their peripheral vision with blinders, thereby ensuring that their trusty steed won’t be bothered by irrelevant stimuli.
As a cryptocurrency investor, sometimes having diamond hands means opting into using a slightly different form of horse blinders for yourself by not checking your account constantly, especially when the market falls (which it often does), and volatile (which it nearly always is).
Don’t mistake this for an ostrich-style head-in-the-sand approach. You’ll still need to understand what’s going on with your investments in full detail.
But remember, you’re in the cryptocurrency market for a long trot toward a higher account value. You don’t need to concern yourself with ever-changing stimuli like short-term price movements, as long as the path ahead looks to be clear between you and the horizon.
3. Make a proper investing plan
The easiest strategy to develop diamond hands is to have a plan for every investment you make.
You’ll need a strong investment thesis that articulates your reasons for why the coin will be higher in a few years than it is today, complete with supporting evidence in the form of macro trends, the presence of favorable narratives, and an understanding of a project’s roadmap. You’ll also need a theory for why the time you’re choosing to buy is preferable to another time, as well as a price target and profit-taking strategy.
For instance, your plan for investing in Bitcoin (CRYPTO: BTC) could be to buy it via dollar-cost averaging (DCAing) as long as the price is at least 10% lower than its all-time high. You could do this with the understanding that you’ll start to sell 5% of your coins each week once your position is worth 10 times what you started with, whenever that may be, with the expectation that it will probably take at least a few years.
Will that plan actually work? It may or may not, but it’s what I’ll be sticking to with my own Bitcoin position.
The point is to go through the effort of making a plan so that you don’t buckle the first time there’s a bump in the road. If something major changes and invalidates your investing thesis, you can always consider whether it might be better to sell.
4. Focus on the long term and accept that your emotions may run wild
If you are constantly looking to trade in and out of your positions, by definition you can never have diamond hands. Likewise, if you are frequently strapped into an emotional rollercoaster of terror when your positions are underwater or declining, it will be very hard to hold on to your coins for long enough to persevere.
Emotions are like the weather. Brooding clouds may bluster their way through the sky in a couple of hours, or linger for weeks while dumping rain or snow — and then they move on.
So it goes with cryptocurrency investing. The price fluctuations of your favorite investments will often be extreme, and unless you develop a healthy detachment, your emotions will get dragged along for the ride — but despite how all-consuming they may feel, they’re transient.
Being reactive to those transient feelings is the playbook for how to lose your money in cryptocurrency. Stepping back and observing them impartially and deciding to check in again when things are calmer is doubtlessly key to having diamond hands.
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Alex Carchidi has positions in Bitcoin and Solana. The Motley Fool has positions in and recommends Bitcoin and Solana. The Motley Fool has a disclosure policy.
4 Proven Strategies to Develop “Diamond Hands” While Investing in Cryptocurrencies was originally published by The Motley Fool