It’s not easy to hold your nerve as crypto assets print double-digit losses. But don’t bury your head in the sand, follow these simple steps and make the most of this bear market opportunity.
The crypto market is experiencing double-digit percentage losses, with bitcoin (BTC) dipping below $20,000 in June 2022, its lowest price since November 2020. General market sentiment beyond crypto is also bleak, and has many investors understandably worried. But that doesn't mean you should throw up your hands and run from the markets.
So, what should you do instead?
1. Buy the crypto dip using dollar-cost averaging
It’s all too easy to be on the wrong side of a crypto trade when markets turn wildly volatile, but that doesn’t mean you have to sit there and watch your portfolio plummet by the hour.
Investors who have held back a reserve of fiat currency or stablecoins, or have expendable capital in their bank accounts, will have the ability to “buy the dip.” This common phrase used throughout the crypto industry refers to the practice of buying up an amount of cryptocurrency whenever there’s a significant bearish correction in the market.
The idea is, if and when prices return back to their previous highs, the dip buyers will bank a nice profit. This echoes the infamous preachings of stock trading legend Warren Buffett, who once said “When there’s blood on the streets, you buy.”
For example, let’s say you have $1,000 in reserve funds. A good DCA strategy would be to break up the amount into five tranches of $200 or even 10 tranches of $100 and place trades using those smaller amounts.
2. Use indicators to find the best entry point
For investors that possess a basic or higher understanding of technical analysis – the practice of predicting an asset’s price movements based on chart trends, indicators and patterns – it’s possible to use certain indicators to gauge when an asset has reached a bottom.
Of course, no indicator is completely foolproof, but they can often give you a strong signal when to buy a dip.
A popular method is to use the Relative Strength Index (RSI) indicator – a momentum oscillator characterized by a channel and a line that oscillates in and out of it. There are two key elements to this tool:
Overbought: When the indicator line breaks out above the channel the asset in question is considered “overbought” – in other words, overvalued – and usually signals that prices will fall back down soon.
Oversold: When the indicator line breaks out beneath the channel the asset in question is considered “oversold,” or undervalued, and usually signals that prices will rise soon.
3. Diversify your investments across different crypto assets
One way to hedge your bets is to use DCA for a range of different crypto assets. This might involve reducing your trade sizes even smaller, but, in doing so, you’ll reduce your overall risk. Of course, it’s not enough to randomly select crypto assets and invest in them. You’ll want to perform rigorous due diligence first on each crypto asset you intend to buy and look for the following:
Previous all-time high: No crypto is guaranteed to return to its all-time high, but it can give you an idea of what sort of potential the asset has.
Past performance: Look at the asset’s price history using tools like TradingView and see how well it has recovered during previous crashes. Does it correlate strongly with the rest of the market, or does it regularly outperform other leading assets? Previous performance is no guarantee of future price activity, but, again, it gives you a rough idea of what might be possible.
Upcoming roadmap announcements: One thing that can assist in an asset’s recovery is the arrival of a major update or roadmap development. These can include things like a rebranding, a mainnet launch or a new partnership.
4. Don’t freak out
This might seem like a no-brainer, but managing your emotions during bear markets is not as easy as it sounds. In fact, it’s often described as being the hardest thing to master when learning how to trade professionally.
Renowned American economist Benjamin Graham once said, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
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