It is quite possible that some of us who have investments in crypto or stocks have not made it through the month of March unscathed. It was therefore intense. Like even the reputed The Economist admitted in a recent video, none of the global markets was really prepared for a pandemic, so things went very fast.
To give everyone some advice in these stressful times, let’s check the golden rules of what to do when the market is just that little bit more intense than usual.
- 1 1. Double down in a bear market is not a good idea
- 2 2. Be willing to switch positions
- 3 3. An investment is not worth waking up at night
- 4 4. When the market is bullish, one can only be neutral or long
- 5 5. Be patient with your winning trades, exit the losing very quickly
- 6 6. Respect the trend of the market
- 7 7. Respect large candlesticks
- 8 8. Markets are cyclical – act accordingly
- 9 9. Be patient until a trend forms
- 10 10. Keep it simple
1. Double down in a bear market is not a good idea
There is an old strategy that says you can always recoup your initial investment if you just double your position when the market goes down. At a certain point it will turn, many think. So let’s say you bought Ethereum for $ 200 and it suddenly drops to $ 150, then you just double your stake and make sure your average is again $ 175.
Don’t do this though, this is a strategy that hasn’t worked since the 1973 oil crisis. The market can remain irrational longer than you have cash. You sell a loss, you do not increase your investment. If you cannot accept losses you should not trade / invest.
2. Be willing to switch positions
It doesn’t matter how optimistic you are about a particular crypto and all its possibilities. If the price continues to fall and your stop loss has been reached, close the position. Do not immediately make another offer at a lower level. The only option to consider right now is to sell even more.
The best procedure is to cut losses early and often.
3. An investment is not worth waking up at night
Every trader makes a bad decision every now and then that leads to a loss, that’s just part of the deal. The most important thing is to avoid emotional attachment to a position. There is a huge difference between investing and trading.
The same happened with the Bitcoin (BTC) bulls that became paralyzed when the price fell from about $ 10,000 to $ 4,500 in just a few days in March 2020. Many did not want to sell then because they thought it would be up and running again soon
4. When the market is bullish, one can only be neutral or long
Too many traders go out of business trying to guess the bottom of a crypto coin or stock. A good strategy is to re-evaluate market trends after each loss. It will only be known for a few months whether the price was high or low. Don’t fight the trend.
5. Be patient with your winning trades, exit the losing very quickly
A trader can make a lot of profit even if he only has 30% of his choices right. The trick is to accept a tight loss of about 7% to 10% on bad trades, and continuously add position to winning trades.
6. Respect the trend of the market
Even if you do not necessarily agree with the trend of the market, you should still respect it. Some traders are 100% convinced that the market will move in a certain direction, and yet it doesn’t happen.
7. Respect large candlesticks
If you look at a market chart through candlesticks, then you have to respect the very long one. If the market suddenly shoots in a certain direction with reasonable volume, it is normal to assume that this direction will be held for a longer period of time. Whether they are red or green, you have to respect large candlesticks.
8. Markets are cyclical – act accordingly
When investors correctly interpret market trends, even a worthless trade can yield a positive outcome. This is exactly the time when an investor should increase the stake and add to existing open positions. On the other hand, if the price is going down, slow down and make each position smaller.
9. Be patient until a trend forms
Keep in mind that short-term trends can differ from longer-term trends. What most inexperienced traders often miss is that the market more often than not has a clear direction. When in doubt, sit down. Wait for a trend confirmation and only then start building a position.
10. Keep it simple
Fear of Missing Out or FOMO is very recognizable in the world of crypto, and yet it is not always the best advice. You can never make all trades. Think about what you want to trade and then do it, but don’t change every five minutes because of a different opportunity.