Beginners Guide to Investing in Micro Cap Altcoins

beginners guide to investing in micro cap altcoins
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Are you currently looking to spice up your crypto trading portfolio? Come across a relatively new coin with a high potential for growth? Like many other traders, you’re worried about investing in micro cap coins being that they are potentially the riskiest assets in the crypto. However, if you have a high-risk appetite and the right trading strategy to boot, you can generate a small fortune trading these small but profitable altcoins.

Within this beginners guide, I’ll outline a basic step by step process in order to best help you get acclimated to both trading and investing micro coins.

Let’s start out with…

What are Micro Cap Altcoins?

Micro cap coins are cryptocurrencies with a rather small market capitalization, usually below $50 million. Investing in these altcoins is risky, but at the same time, it’s also a very profitable way to earn off cryptocurrencies in a rather short amount of time.

Micro cap altcoins are like penny stocks. They have the potential for big rewards but are also prone to an increased risk of greater than average losses. Some may consider micro caps as being more riskier than penny stocks due to the high volatility, however, if you know how to pick the right chart (which is over half the work), the risk is relatively low.

What are the Pros and Cons of Micro Cap Altcoins?


The upside to micro cap coins is their potential for massive profit within a relatively short amount of time. If you’ve decided to invest in a micro cap early enough in its development stages, you’ll experience the potential of exponentially profiting from your initial investment. Being an early investor (or even swing trader) also means you don’t have to invest a ton of your own money in a project in order to enjoy high returns.

Also worth noting, analyzing micro cap coins is a bit easier of a process due to the fact that these small cap altcoins are often unknown to many traders, which means you have less competition when buying and selling the coins.


Investing in micro cap coins puts you at a higher risk of being scammed (again, if you’re in it for the long haul). However, if you’re trading these coins for a relatively short amount of time (a few weeks to a few months) you don’t really need to worry as much about this scenario. If you don’t conduct proper research (due diligence) into your preferred coin, you may end up losing your money once the crypto company decides to exit the market along with all your investment capital.

Like any other business, crypto-based start-ups are at risk of failing. The risk of developer abandonment in micro caps is relatively high, so if you’re going to, invest, make sure your research on the development team is extensive.

Another disadvantage of micro caps is the lack of liquidity. Low liquidity limits your ability to buy or sell a full position in a single trade. In case there’s a dump, you’re at a higher risk of losing your money due to this inability to sell a full position at once.

As an investor, you want to make sure that you’re spreading out your investment across multiple micro cap coins in order to spread out the risk and avoid having too much of your capital stuck in a coin that suffers from low liquidity.

NOTE: As a swing trader, you typically only want to trade with 1-3% of the coins daily trading volume. For example, if your micro cap coin is trading at around 25 BTC per day, 1% of that is 0.25 BTC (around $2k at the time of this post). Ensuring that you’re trading within this range will allow you to buy in and sell out of the coin whenever you like.

Micro Cap Volatility

Micro caps are highly volatile. This is what makes them so lucrative. Small market movements can have a significant effect on the price of a coin. Individual events can also have a considerable impact on the price of one of these smaller cap altcoins.

Profit margins of 100% – 350% within a few hours’ time are not unheard for micro cap coins. Most of these high profit returns come from pumps which generally take place over a rather short amount of time (a few minutes to a few hours).

Generally speaking, the reason behind most of these pumps is primarily due to:

  1. Behind the scene bid manipulation
  2. Pump and dump groups
  3. Social media hype
  4. Negative or very positive news about the coin

Now that you have a basic understanding about the risks and rewards of micro cap investing, let’s delve into how to integrate them into a very basic trading strategy.

Integrating Micro Caps into Your Investment Strategy

Before making any investment decision, do your homework. Choose projects that you believe have the potential for growth. Don’t simply buy into a project because of the social media hype. Conduct thorough research before buying any type of cryptocurrency, regardless of how big or small the market cap is.

Trading micro caps also requires patience. In most cases, you’ll purchase the coin(s) at a lower price by setting a buy limit order near a major support while setting an alert once that buy order is met (you can set alerts at TradingView).

Once your buy order is completed and your alert has been triggered, you want to immediately log in to your crypto exchange and set your sell order for the closest major resistance. While waiting for your sell order to be filled, keep up to date with any news regarding the coin (the coins Twitter account is a great resource).

Any sensitive news can trigger a price movement, and due to the low liquidity, you may experience massive losses or gains according to this news. Either way, make sure to set another alert once for your sell order completion.

Beginner's guide to investing in micro cap coins
Creating an alert on Trading View

One rule of thumb when trading micro caps is to never put all your eggs in one basket. When investing, expect that over 80% of these investments to fail. However, the remaining 20% will result in most if not all of your profit.

Don’t make micro caps the entire basis of your investment strategy. Try and diversify your cryptocurrency investments among both micro cap and larger market cap coins like Ethereum, Ripple, EOS, etc.

How to Choose Micro Caps with High Growth Potential

Most of your investment decisions are often speculations based upon research on the potential for exponential growth. Other than your gut feeling and logic, there are other factors that you should consider before buying into a micro cap coin.

1.      Does the Coin Have any Innovative Features?

In our fast-paced world of technology, many projects fade away into the tech abyss due to outdated or unpractical use cases. Cryptocurrencies are no exception. When choosing a micro cap coin, look for one with multiple use cases, as these have a much higher chance of success.

Also ensure that the company behind the micro cap coin is at least in the development stages of the technology and offers proof of this through regular GitHub updates. Note, there are a lot of cryptocurrency websites with “fluff material” so a GitHub development page goes a long way to show the progress of the company’s goals.

2.      Are People on Social Media Talking About It?

Another indicator of a project’s potential is the community and user base. Coins with high growth potential have high forum activity. They also have a community of users and active developers constantly promoting the coin. Twitter, Telegram, Reddit, and the altcoin section of Bitcointalk are all great places to get a sense of a coin’s community engagement.

3.      What is the Circulating Supply of the Altcoin?

Circulating supply is the total amount of coins available for sale right now. Websites such as Coinmarketcap are useful tools for tracking the number of coins in the market at a particular time.

Coins with a low circulation supply tend to be in high demand and are priced at a much higher rate. A coin with a small circulating supply has a higher chance of experiencing a rapid increase in price.

When deciding to invest or trade a micro cap, always choose the one that has fewer coins in supply.

4.      What is the Micro cap’s 24-hour Trading Volume?

Trading volume is the total number of coins bought or sold through an exchange. When deciding on a micro cap coin, choose one with trading margins above 2% of the market cap within 24 hours.

Also as a general rule of thumb mentioned above, if you plan on swing trading a micro cap, make sure that you’re only investing in 1% – 3% of the average 24 hour volume. This ensures that you can get in and out of a position quickly.

How to Profit From Micro Cap Trading

Look for Breakouts

There are a plethora of strategies for trading micro cap coins. One such strategy is to purchase the micro cap based upon a “breakout” of a major resistance. Always be on the lookout for signs that a coin is breaking out of its current price channel. You can set TradingView alerts in order to notify you of these breakouts. A breakout can be the start of either a bull run or an indicator of a pump.


Following the Pumps

Price manipulation is common within the crypto ecosystem. In 2018, there were thousands of pump and dumps. This is also frequent in penny stocks as well, but who’s to say you can’t take advantage of these fraudulent events?

If you can spot a potential pump in advance, they can be extremely profitable. The only legit way of doing this is by trying to discover an upsurge of PR and spam emails promoting a micro cap coin. This is often a warning sign that a pump is imminent.

You can do this by setting up twitter alerts as well as follow the company’s twitter profile for notifications. If you’re quick enough, you’ll be able to catch most of the pump once the release of information has been posted on their twitter account.

Another common way of detecting pumps is by analyzing charts and recognizing gaps of time in between each pump. For example, analyzing a chart that has had 2 – 3 pumps with a 7 – 9 day gap in between them has a high chance of occurring again.

From there, you would simply place a buy order on the fifth or sixth day (near support) and wait for the same pattern to emerge. Patience is key for this strategy to pay off.

Using Technical Analysis Indicators

Technical indicators such as Relative Strength Index (RSI), Moving Averages, and Moving Average Convergence Divergence (MACD) can help you predict whether a coin is going through a bearish or bullish trend. Obviously, you want to stay away from any coin that has been experiencing an extended bearish trend.


Trading micro cap coins isn’t for everyone. You need to have a high tolerance of risk, unbridled patience, and an ability to react quickly to unforeseen situations. However, with all that said, the risk can definitely pay off in spades.

If you’re up to the risky endeavor, diversifying your crypto portfolio with these highly lucrative coins can result in exponential returns, within a rather short amount of time.

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