There is an air of gloom and doom in the cryptocurrency markets this week. Across the board, bitcoin and the leading altcoins are all showing a drop in price. The question for crypto owners is: what should I do now?
Reza Jafery posting on Medium talks about the need to make sane decisions when the market is in this state, saying,
“Trading or investing in cryptocurrency is a psychological war against yourself.”
Indeed, investing in markets does require mental strength and self-control.
Jafery also comments that if the traditional markets require traders and investors to stay strong, then the crypto market requires “the mental fortitude of a Jedi.” This is because it is the most volatile market in existence and it is as he says,
“almost completely sentiment driven.”
As a result, the market’s movements don’t always make sense. It also has more retail investors than any other market. These investors aren’t professionals and they tend to be driven more by the feeling of excitement about the market. For example, when there is a surge in Google searches for ‘bitcoin’, the price is typically on the rise, as the search volume actually starts to pick up just before the price goes up. Therefore the price is being driven by emotion. And as Jafery says,
“To come out on top in a market-driven by emotion, you have to remove emotion from your trading.”
When the price falls, it is hard to stay calm, but that is exactly what you should do because you can be confident that it will go back up again.
Another mistake that investors tend to make is trying to “catch the bottom.” This means you’re attempting to enter into a trade at the bottom of a downtrend. It’s almost impossible to execute this successfully. As Jafery suggests, “if you’re planning on entering a trade, it’s better to just get in near the bottom rather than wait.” This advice is particularly important for retail investors.
Another sensible bit of advice is this: don’t sell coins that are falling for ones that are going up. If you’ve done this, you’re certainly not alone. What tends to happen is that the minute you sell those coins that don’t seem to be performing, and probably at a loss, hoping to make a killing with some coin that is surging in price, you can bet that the coins you’ve just sold will skyrocket.
Finally, don’t keep looking at the price charts. They won’t miraculously start shooting upwards because you’re watching them. Jafery recalls what happened to him when he sat “charting” for hours on end:
“When I wasn’t being productive, I was needlessly monitoring my holdings like a hawk. It made me more emotional, and it made me overtrade. Two things I now know to avoid at all cost.”
Stay calm folks and make sane decisions with your crypto holdings this week!