One day, all your crypto-investments are in the green and the very next, they're all in the red. If you're new to the crypto game, you may be having a heart attack. But for someone in the market for even just a month, you have probably experienced this cycle a couple times by now. This article aims to provide some general tips on how to safeguard your positions and furthermore profit from said market fluctuations:
1. Pay attention to the total market cap.
The total market cap can often a signal a market crash when it hits an all-time high (ATH). The last crash occured five days ago around a cap of $115B. Today's crash happened ~$116B. Furthermore, take note of how long it took for the market to rebound after the last crash as well as the daily market volume. We bounced back from the last crash in 5 days, so about 4 days from now you should think seriously about a pending crash. Consider selling some of your positions if there are other indicators of a possible correction. Even a gain of 10% is still 10%...and that's more than 0%.
2. Is everything in the green?
When 95 of the top 100 cryptos are in the green, be on guard. We are due for a market correction.
3. Be in-the-know.
Many traders know nothing about the coins that they are trading, apart from a technical analysis of the charts. You can make gains playing the numbers in this fashion, but to truly maximise your potential you need to be plugged into the cryptoverse. Maybe BTC rebounded today due to the positive moves its making in India? Maybe the upcoming Civic ICO, which accepts BTC, had a role to play? Or perhaps it was the realization of 80% SegWit2x support, alleviating many fears within the BTC community. To be a smart investor means to subscribe to your coins' Reddits, Slacks, Telegrams, Twitters and so forth. Expect a future post detailing my favorite outlets.
4. Check your mindset. Green = sell; red = buy.
When you're in the green, always consider taking a calculated sell position. The key word here is consider. If you plan to hold on to a certain coin in the long-term, of course do not sell it if you believe in it. But for a coin you have no attachment to outside of profit, ideal trading practice dictates that you are obligated to consider taking a sell position. Profit is profit and that's why you're here.
On the other hand, when cryptos are in the red, consider them "on sale". Be patient and buy at a calculated low.
5. Maintain liquidity.
Of course, the above cannot happen unless you maintain some liquidity. Therefore it is imperative that you sell prior to the crash so you are ready to strike when everything falls by 10%. At the least, you will make that dip back in profit when the market rebounds.
6. Hedge when Bitcoin is near-ATH.
The Bitcoin price cycle can be seen as fluctuating from the ATH to a crash, over and over again. One way to capitalize on this is to hedge your Bitcoin into a less volatile currency at highs and trade it back for BTC during a low. The obvious pair to do this with is Tether (USDT), which also offers the advantage of liquidity if you want to trade it for something other than BTC. Litecoin (LTC) has proven itself to be a great hedge as it is seen as a great alternative to BTC (and most recently, showing strong growth in light of the crash). Ripple (XRP) and Stellar Lumens (XLM) have also shown resilience to crashes. One of my personal favorite hedges (which I am accumulating for the long-term) is the sleeper-hit Lykke (LKK) - more on that in another post.
Always take note of cryptocurrencies that show such resilience and think of them as a tool in your trading arsenal.
With patience, restraint and discipline you can weather the storms the cryptocurrency market throws at you. Establish a gameplan that makes black-and-white sense and stick to it. These moves require confidence in yourself to pull off (otherwise, you may panic and chase or sell at a loss). More on confidence in a future post as well :)
I hope this helps if you feel lost - please comment with your further advice and experience as I would love to learn from you.