Strategies During A Market Downturn
Strategies that you might want to follow during a market dip in order to hold on to the value in your portfolio, avoid emotional trading, and lose less sleep.
Don’t fall prey to FOMO and FUD
Staying on top of the latest news and trends in the cryptocurrency space is crucial, but too much information can definitely be a bad thing. This is especially true in market downturns, where it’s all too easy to be overcome by your instincts and make some badly timed trades.
- FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt) are common terms in the crypto space, and can have a stronger influence on our choices to buy and sell than many of us would like to admit.
- FUD generally refers to a negative market sentiment, caused by some rumor, unfavorable news article, or prominent figure expressing concerns about a particular market or asset. This can have a negative effect on the price as traders sell their holdings expecting further price decreases. FOMO is the opposite, speaking to a trader’s tendency to get carried away with wishful thinking after seeing positive price action or news, sometimes overlooking fundamental signals in a haste to jump aboard the next rocket ship to the moon.
Set clear goals, diversify, and only trade within your means.
No matter how confident you are in a particular asset, you should never invest more than you can afford to lose. The last thing anyone wants is to be caught in an emotional rollercoaster waiting for positive price action as the price of their portfolio slowly drops.
- Most savvy investors also choose to hold a number of different kinds of assets long-term to diversify their portfolio — from alternate cryptocurrencies to stock market index funds.
- It’s often said that crypto doesn’t sleep. Cryptocurrency markets are well known for their volatility and to counter this, crypto investors should predefine their trading strategies, and if possible, their entry and exit points.
- Even if you had access to every bit of information available, a sudden black swan event, hack, or tweet from a high-profile individual could cause prices to plummet. This is why it’s crucial to plan ahead and to take steps to mitigate your losses should some kind of sudden crash occur.
- Investors could consider fixed strategies like dollar-cost averaging (the process of buying or selling small amounts over regular intervals), which could help a crypto buyer completely avoid trading with their emotions, or having to stare at the charts 24/7.
HODLing and long-term thinking
While the saying that “it’s not a loss until you sell” is only partially true, it does carry some weight. If the value of your assets has gone down since you bought them — called unrealized losses — they are only realized once they’re sold for less than your purchase price.
- Through the years, Bitcoin has consistently trended upwards over the long term. Even if prices are falling due to a temporary market correction or a longer bear market, history shows that prices are likely to recover eventually due to economic drivers like scarcity. Many people believe that this limited availability will cause the price of cryptocurrencies like Bitcoin to continue to rise over time. If your investing timeframe is on the longer side (years instead of weeks or months) negative price movement can be viewed as being temporary.
- Holding for long periods has to date been a proven strategy, with Bitcoin emerging as perhaps the most successful major asset of the last decade.