Avoid FOMO to plan a recovery: 5 things to do in a crypto bear market
Be greedy when others are fearful, and be fearful when others are greedy
This article will cover the following concepts:
- Buying the dip - prices falling are a good opportunity to get a good entry into projects you believe in, split your buys up to get the best average pice
- Looking for opportunities: "a falling market is the only sale where people are afraid to buy" - but with due dilligence, opportunities can present themselves
- Diversifying your investments - a diverse portfolio gives you a greater chance of including successful, high growth projects in your selection
- Avoiding FUD (Fear, Uncertainty and Doubt)
At time of writing (19/05/2022) BTC is down 50% from the high
Many of us are losing sleep (and money) due to the latest crypto meltdown, which has sent crypto assets into a downward spiral. Many experts and market analysts are saying that we are now firmly in the grips of a bear market. So, precisely what is a bear market?
While it is normal to panic and become frustrated over falling prices, it is not the best course of action. Below are 5 tips on how to protect your capital and profit in a downturn.
Once markets start correcting, investors with reserve funds or stablecoins on hand will be able to "buy the dip". This widely used expression in trading refers to the habit of purchasing crypto or stocks whenever markets correct themselves. The logic makes sense, as if and when prices rebound to their earlier highs, the dip purchasers will have made a considerable profit on their trades.
While it is possible to buy the dip in a single trade, the most suggested technique is to use "dollar-cost averaging (DCA)." This involves dividing your reserve funds into smaller chunks and executing multiple trades over time. Assume you have $1,000 in reserve funds, for example. A decent DCA technique would be to divide the cash into five $200 tranches or even ten $100 tranches and make smaller trades over time.
It is tough to identify when an asset has bottomed out (reached the lowest price before reversing). Thus, rather than investing all of your money at once, buying small quantities is usually wiser and waiting to see if the asset price falls further. If it does, purchase some more, and so on.
“A falling market is the only sale where people are scared to buy."
If you look closely, there are numerous possibilities to acquire your preferred asset at a discount and turn a profit during a downturn.
Shorting, or speculating that the value of an asset will fall, may also be a profitable strategy during dips. Activities such as staking and DeFi yield farming can help level out returns and ensure that your crypto balance is constantly growing, even during a weak market or downtrend. Click to read our guides on DeFi and Staking.
It is practically impossible to anticipate which cryptocurrency will skyrocket in price, just as it is hard to predict when the market will bottom out. As a result, no matter how well informed you are or how convinced you are that a particular cryptocurrency will appreciate, putting all of your eggs in one basket is not prudent. Diversifying your portfolio across properly researched crypto-assets is the wise thing to do. Because, in the end, it is your money that is at stake.
Do your due diligence: Of course, you cannot invest in 17,000 cryptocurrencies at random. Before investing, conduct extensive research and look at their historical ATHs and previous performance in a down cycle to understand the potential the crypto possesses. To make a timely entry into a profitable crypto trade, you need also look for the roadmap and upcoming events such as mainnet launch, product launch, and exchange listing.
Clearly define a strategy: Crypto is supposed to never sleep. Staring at charts or examining price action 24/7 is unsustainable, and bad for your mental health. As a result, investors should plan their entry and exit positions ahead of time and stick to their strategy without fear or greed. Yes, it's easier said than done. However, discipline is the only way to create wealth, whether trading cryptocurrencies or equities.
If you are someone who does not wish to ride the roller coaster of daily trading, HODLing is the best way to make money in the long term. Even if prices fall due to a momentary market correction or a more prolonged bear market, history shows that prices will eventually return due to economic factors such as scarcity. Many people believe that the shortage of cryptocurrencies such as Bitcoin will cause their prices to rise. If your investment time is longer (years rather than weeks or months), negative price movement may be temporary and irrelevant to your long term price targets.
FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt) are popular terms in the cryptocurrency industry. They can significantly impact our purchasing and selling decisions, perhaps more than many would like to admit. Although it may sound obvious, controlling your emotions during a down market is more difficult than it appears. It is, in fact, sometimes regarded as the most challenging aspect of learning to trade professionally. Before entering a transaction, having a clear plan might mean the difference between profiting and losing money.
The cryptocurrency market is notoriously volatile, and you may be disappointed if you miss out on good possibilities. Take profits, maintain some capital in reserve for crashes, and remember to keep your calm when the bears arrive.
Disclaimer: The content in this website is for informational purposes only. You should not construe any such information as financial or other advice. Please do your own research before making an investment decision.