One of the main reasons for getting involved in the cryptocurrency space is because of the volatility. There’s no doubt that the constant price movements in the market is can be exciting and a lot of fun, but sometimes it’s not. Sometimes traders and investors find themselves in a tight spot with their assets. Whether regulatory news breaks that shakes the crypto world, another country decides to “ban” cryptocurrencies (they never do, by the way), or you’re enduring a massive sell-off, here are some of the best things to keep in mind as a newcomer with a market that’s going, well, not in your favor.
Develop a Plan
As a trader, you’ve likely heard this tip before, but that’s because it’s incredibly important. Whether you’re a day trader, mid-length investor, or in it for the long haul, you need to have a plan put in place before purchasing any asset and cryptocurrencies are no different. Decide on what type of investor/trader you’re going to be and develop your strategy around that.
Scenario 1 - Sell and Buy Back In
In this scenario, we’re looking at BTC/UDS on Bitfinex with 4-hour candles. Let’s say you were feeling bullish on Bitcoin and thought the decline was almost over, so you bought in at point A. Afterward, you start to notice the price declining again. Here, we can decide to sell back into fiat (like USD or a stable coin like USDT) and wait for the decline to continue.
As you watch the market continue on its decline (lower highs, lower lows), you can consider selling off at what would be considered a “loss,” only to buy back in at a lower price (Point B).
[Note: you’re never going to be able to perfectly time the bottom, so don’t beat yourself up if you buy the “dip,” only to have another drop in price. Instead, gradually start purchasing more BTC as the price declines every time it finds some support along the way. This will help assure that your average overall purchase price is lower.]
In this scenario, we’re taking advantage of the dropping price in order to accumulate more BTC for the next run up. This strategy is only effective if you believe in the cryptocurrency and that it will go back up over time.
Scenario 2 - Sell Back Into BTC or ETH
Just like the markets, situations change. It’s important that you know why your assets are dropping in value. In some situations, selling for fiat and buying back in at a lower price is not always the best option. Is your crypto dropping in value because of a scam? Is the team being brought to court or being shut down? These are all questions that can give you the answer you need.
If this unfortunate scenario is the case (take Bitconnect or Prodeum, for example), and you don’t want to pull your money out of crypto, then your best available option is going to be not to panic, but to sell back into a major, trustworthy coin like bitcoin (BTC) or ether (ETH). Sometimes you don’t make the best investments; it happens to the best of us, just focus on mitigating loss and staying calm.
Scenario 3 - Cash Out Into Fiat
This next scenario doesn’t need to be a permanent decision, but sometimes it’s the right call to make. If you’re noticing your alt coins dropping in value along with BTC and ETH, then you may be more confident in pulling back. If you need to, traders can always cash out temporarily into either fiat (if trading on a platform like GDAX), or a stable coin like USDT (if trading on other, non-fiat supporting exchanges). This will give you time to gather your thoughts, develop an investment strategy, and reevaluate your gameplan.