The answer is yes, but the premise is that you can master the correct investment strategy, maintain rationality, be willing to endure volatility, and continue learning. Financial freedom has never been achieved through luck but through understanding, action, and a deep comprehension of the market.
Today, I will thoroughly analyze the iron rules and trading strategies of cryptocurrency trading that have weathered the storms of the market, hoping to illuminate the path for everyone in their investment journey in the cryptocurrency world, helping everyone avoid detours and significantly increase their chances of profit.
One, accurately respond to market fluctuations
A crash, undoubtedly, is a harsh test for the cryptocurrency market; it acts like a sharp scalpel, precisely dissecting the true quality of each cryptocurrency. When the market crashes like it has encountered a storm, the performance of quality cryptocurrencies often stands out. They act like a solid fortress, able to maintain relatively small declines amid the tumult. The underlying reason is likely that the market makers are fully supporting the prices; they are well aware of the inherent value of the cryptocurrency and invest large amounts of funds to stabilize it at critical moments. For instance, Bitcoin, during the cryptocurrency winter of 2018, saw the overall market decline by over 80%, but Bitcoin's decline was relatively small, around 70%. This performance highlights Bitcoin's stability as a quality cryptocurrency, allowing long-term holders to maintain confidence even in the darkest moments of the market. In contrast, if a cryptocurrency shows significant declines during a market downturn, even falling more than the overall market, it is likely a warning signal, indicating potential issues with that cryptocurrency. For example, a certain emerging cryptocurrency once experienced a sharp decline during a minor market adjustment, later revealed to have issues with fund misappropriation by its project team, leading to a plummet in value and significant losses for many investors.
Two, clear short-term and mid-term strategies
1. Short-term: The simple and practical 5-day moving average trading method is indeed a sharp sword for short-term operations. When the cryptocurrency price steadily stays above the 5-day moving average, this is usually a strong signal that bullish forces are dominant, indicating high short-term demand for that cryptocurrency; it is an excellent buying opportunity. Taking Ethereum as an example, during the bullish market in the first half of 2021, Ethereum's price repeatedly rebounded after pulling back to near the 5-day moving average. If investors can follow this rule and decisively buy when the price pulls back to the 5-day moving average, selling after the price rises a bit, they can easily capture waves of short-term gains and achieve rapid capital appreciation. However, once the price falls below the 5-day moving average, it indicates that bearish forces are beginning to strengthen, and market sentiment has turned pessimistic. At this point, decisively selling the held position can effectively stop losses and avoid further losses.
2. Mid-term: The 20-day moving average provides clear directional guidance for mid-term investors. When the cryptocurrency price successfully crosses above the 20-day moving average and the 20-day moving average starts to turn upwards, this marks the official beginning of a mid-term upward trend. At this point, investors can boldly buy in and hold for the long term, enjoying the benefits brought by the market's rise. For example, Ripple's price successfully crossed above the 20-day moving average in late December 2020, and subsequently, the 20-day moving average continued to rise, with Ripple's price climbing from around $0.2 to above $1.5, an increase of more than six times. Conversely, if the cryptocurrency price falls below the 20-day moving average and the 20-day moving average turns downward, this is a clear signal of a mid-term downward trend, and investors should exit in time to avoid risks. The most important thing when executing these strategies is to have strong execution power, strictly follow the rules, eliminate hesitation and luck mentality, so that one can steadily move forward in the complex and ever-changing cryptocurrency market.
Three, accurately grasp trends and entry timing
The main upward wave is undoubtedly a fast track to wealth in the cryptocurrency market. Once it roars in, investors must decisively jump on board to ride this train to the shores of wealth. In determining whether the main upward wave is coming, trading volume is a key indicator. When the market shows a trend of increased volume and rising prices, it indicates high market enthusiasm, with substantial funds flowing into the market and strong bullish forces. At this time, investors should firmly hold their positions and let profits run freely. For example, during the bull market of 2021, many mainstream cryptocurrencies like Bitcoin, Ethereum, and Dogecoin surged significantly with a substantial increase in trading volume. Dogecoin's price rose from almost negligible levels to around $0.7 within a few months, with gains reaching thousands of times. However, when the market shows a significant drop in volume, it indicates that panic sentiment is spreading in the market, and bearish forces are dominating. At this point, investors should timely reduce their positions to avoid substantial asset depreciation. For instance, during the cryptocurrency market crash in May 2022, mainstream cryptocurrencies like Bitcoin and Ethereum saw significant drops, leading to heavy losses for many investors who did not reduce their positions in time. Closely monitoring changes in trading volume is like accurately grasping the pulse of market sentiment, helping investors make correct decisions at critical moments.
Four, strictly adhere to stop loss and take profit discipline
1. Stop Loss: In the investment process, stop loss is an important line of defense to protect the safety of investors' funds. For example, after an investor buys a certain cryptocurrency, if the price remains stagnant for three days, this likely indicates that the market's interest in that cryptocurrency is low, and there is little chance of a short-term rise. At this point, decisively implementing a stop loss can avoid funds being tied up for a long time and missing out on other investment opportunities. Furthermore, if the loss exceeds 5% after buying, one should also decisively implement a stop loss. Taking EOS as an example, after its launch in 2018, its price continued to decline for a period. Some investors did not stop loss in time when their losses exceeded 5%, hoping for a rebound. However, EOS's price continued to decline, dropping from around $20 to below $1, leading to substantial losses for those who did not implement a stop loss.
2. Take Profit: For severely oversold cryptocurrencies, once it is confirmed that they have entered the oversold rebound channel, investors can consider following up. However, while following up, it is essential to set a take profit point. For example, when profits reach 20% or 30%, one should decisively take profit and secure the earnings. There was once a cryptocurrency that showed signs of an oversold rebound after a long period of decline. Some investors did not take profit in time after following up, and when the price fell again, they not only lost their profits but also found themselves in a state of loss.
Five, hold tightly to leading cryptocurrencies
Leading cryptocurrencies in the cryptocurrency market act like a stabilizing force, possessing unparalleled influence and stability. When the market rises, they often take the lead, with remarkable gains. Bitcoin, as the absolute leader in the cryptocurrency market, has demonstrated strong leadership in multiple bull markets. In the bull market of 2017, Bitcoin's price rose from around $1,000 at the beginning of the year to nearly $20,000 by the end of the year, an increase of 19 times. Other mainstream cryptocurrencies like Ethereum and Ripple also achieved several times or even dozens of times increases under Bitcoin's influence.
During a market downturn, leading cryptocurrencies also demonstrate strong resilience. For example, in the 2022 cryptocurrency bear market, Bitcoin's decline was relatively small throughout the bear market, providing investors with a certain level of safety. When investing, investors should dare to buy leading cryptocurrencies when others are fearful and sell appropriately when others are greedy; only by going against the trend can they reap rich rewards.
Six, act in accordance with the trend, find the right buying opportunity
In the cryptocurrency market, following the trend is the key to investors' survival and profit. Do not stubbornly pursue the lowest buying price, as it is nearly impossible to accurately buy at the lowest price in real operations. Many times, the best buying point is actually when the price stabilizes after a pullback, at the 'halfway up' stage of the upward trend. Taking Litecoin as an example, during a bullish market in 2019, Litecoin's price started rising from around $30, and after reaching around $50, it experienced a period of pullback. When the price pulled back to around $45 and then stabilized and began to rise again, it was a very suitable buying point. Although the price at this point was not the lowest in this round of the trend, during the subsequent rise, Litecoin's price climbed above $140, resulting in substantial profits for investors who bought at this 'halfway up' point.
Seven, review, the bridge to continuous profit
Consistent profitability is not achieved overnight; it requires investors to establish a stable trading system and is inseparable from continuous review and summarization. After each trade, whether successful or unsuccessful, investors must calm down and analyze the reasons carefully. Was the timing of entry wrong, or was the stop loss/take profit setting unreasonable? Was it influenced by market sentiment, or was the fundamental analysis of the cryptocurrency inaccurate? For example, in one trade, an investor blindly followed the market's optimistic sentiment and bought a certain cryptocurrency, only for the price to start falling after the purchase. Through review, the investor realized they were influenced by market sentiment and did not conduct independent thinking and analysis. In subsequent trades, the investor will pay more attention to judging market sentiment to avoid blindly following the trend again. Only through continuous reflection and summarization, optimizing their trading strategies, can investors achieve long-term stable profits in the turbulent cryptocurrency market.
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