Volatility is higher than it's ever been in cryptocurrencies. Bitcoin is in uncharted territory and Ethereum is working on a new all-time high. For the US, a new administration is here and who knows what regulations could be imposed on crypto. There is so much uncertainty yet a huge flux of money into the market. For traders, especially newbies there are some important things to remember.
Skilled Traders Profit Off Beginners
Knowledgeable traders with experience and a firm trading plan capitalize of beginners. What I mean by this is experiences traders who utilize technical analysis can almost predict changes in the market. These traders are less often victims of FOMO and understand that an overbought market will come down. A common mistake for beginners is buying during rapid price movements because they believe it's going to keep climbing. What you have to remember is that bitcoin investors who bought at 20K are going to take profit, especially when they can double their investment.
BIG MISTAKE: Buying High & Selling Low
I've read so many posts from traders who made the mistake of buying high and selling low. This was seen a lot during the recent bitcoin bull run. Prices rose from 20K to 40K in weeks and many thought it was going to keep going. This FOMO forced people to buy at 40K and when the price corrected to 30K they sold. What did we see after that correction? The price rebounded back to 40K, then again corrected to 30K. If you bought at 40K, right now you are at a loss but if you believe in the future of bitcoin you shouldn't worry. These short-term losses are long-term gains. If you buy at 40K and sell at 30K, that a 10K loss that you can never recover. When the prices moves to 40K and beyond, you are still at a loss.
How Fear Makes Millionaires
You always hear the term, "buy the dip" which I strongly believe in. The "dip" is normal and we see it as investors start to take profit. What causes an even bigger dip is fear. When the price drops, people panic and sell. The panic selling pushes the price down further, which causes more people to sell. On the other side of this, experienced traders know this is the perfect time to buy more.
I've been accumulating bitcoin for several years and refuse to sell at a loss. Instead, I dollar cost average. This means, when the price drops I buy more to average my entry price down. My most recent bitcoin transactions followed this method. I watched the bull run from 20K to 40K and just waited for the right moment to buy in. I ended up buying at 36K and not even hours later, the price was at 29K. My response, buy bitcoin at 29K and now I averaged down to 33K. The price jumped up to 35K and while I'm still at a loss on my 36K investment, I've made profit off the 29K and thanks to dollar cost averaging I'm overall in profit.
When I see a dip, I don't fear and instead get excited as I am now able to purchase more of an asset at a cheaper price. I don't day trade and I'm not investing for the short-term. I look at long-term growth and bitcoin seems to be a solid investment. Also, don't risk more than you can afford to loose. Don't over invest in something if you couldn't stomach the loss.
This isn't financial advice, develop your own trading plan and make sure to stick with it.