Money management is paramount, but fearful trading doesn't do you any good either
One thing that I think can't be overstated is the fact that constantly preparing for that upcoming pullback is the wrong way to invest...
(Source:
)https://twitter.com/michael_saylor/status/1364554800747134979
- michael_saylor
I have a friend, and lets call him Bob.
Bob is constantly trying to time a large pullback in the stock market, he's looking to go short on every slight move up and rarely ever goes long the stock market.
This has caused him to miss massive gains over the last decade.
Basically ever since the crash happened in 2008/2009 he's been trying to time the next big one.
He's convinced that the was the tremor and the real collapse is yes to come.
Long story short, the stock market has gone up many multiples of those lows and he's hardly had a profitable trading year since.
Moral of the story, don't be like Bob.
How does that relate to bitcoin and crypto?
If you recall I have posted a chart of the 2017 bull market along with its corrections and subsequent rallies.
It looks like this:
(Source: @jrcornel/don-t-worry-this-isn-t-likely-the-end-of-the-bull-market-in-bitcoin)
When you see a chart like this it becomes very tempting to try and play these dips and rips.
For example, after bitcoin ran up to $42k, the idea was to sell that runup and then buy it back around $30k.
That would be about a 30% drop and that's pretty much exactly how it played out, but what if it's not quite that cut and dry and not quite as easy to time?
Most people will sell too early and buy too early on the way down, or buy too late and miss the buy all together.
The idea that another 30% correction is coming might tempt you to try and sell some that you can get back in later, while that strategy might sound great in theory, it's very difficult to pull off in reality.
I know of several people who have attempted to do just that and ended up with less bitcoin than they started with or out of the rally all together...
So, how should we instead play it?
I'm glad you asked!
Like in life and in Southpark, the theory of Moderation makes sense...
(Source: https://southpark-online.nl/en/clip/heat-wave)
If everyone were to hold in their farts all the time, they would spontaneously combust, but if they farted all the time then the world would be a smelly place that no one wanted to live in.
Therefore, moderation is key!
With bitcoin, if you have conviction that the price is going higher, to say something like $100k or $200k, but you want to also try and trade a bit, only use a portion of your holdings.
For example, you could hold onto 2/3rds of your investment and then try and trade in and out with the other 3rd. Or, if you are more aggressive then you could hold half and try and trade half, something like that.
This is more or less the strategy that I personally follow, it helps me achieve good returns while also satisfying my need to try and time the market. :)
Happy trading!
Stay informed my friends.
-Doc