Those interested in the cryptocurrency market have certainly noticed how the recent years have been filled with volatility and negative news that has shaken this young market, such as the free fall and complete collapse of the cryptocurrency exchange FTX. It's never easy for investors and traders to navigate such collapses, especially in a market as risky as the cryptocurrency market.
This article provides some rules and tips to better manage such periods and avoid sharp declines in cryptocurrency prices.
Rules for dealing with cryptocurrency price crashes
Don't let your emotions get the best of you when dealing with a cryptocurrency market downturn.
It is necessary to have a plan for trading cryptocurrencies and adhere to strict money management rules.
Investing in cryptocurrencies via the DCA (Direct Assets for Investment) plan
Accept the nature of cryptocurrencies as risky and volatile but can sometimes be rewarding.
When prices fall and a bear market occurs, it is an opportunity to enter.
Frequently asked questions about the rules for dealing with cryptocurrency price crashes.
Don't let your emotions get the best of you when dealing with a cryptocurrency market downturn.
Controlling emotions is an essential aspect for any trader who wants to be successful, and this is even more necessary when it comes to cryptocurrencies, as these assets are considered highly volatile and risky.
Therefore, it is important to learn to control emotions to prevent them from taking over your ability to objectively analyze the markets and make your own trading decisions.
It's very difficult in the cryptocurrency market, where price movements can be rapid and impressive or disappointing, and in recent months, numerous scandals in the crypto arena have not helped maintain calm and composure.
So emotional control and emotional commitment make the difference in the cryptocurrency market.
It is necessary to have a plan for trading cryptocurrencies and adhere to strict money management rules.
One of the essential trading tools for controlling your emotions and strengthening your discipline when trading in the cryptocurrency market, especially in the short term, is to have a precise trading plan with defined and controlled risk management.
It is important to insist on money management that allows you to protect your trading capital, as cryptocurrency trading is a highly risky activity due to the unregulated nature and extreme volatility of cryptocurrencies.
Depending on your trading style, whether it is scalping, day trading, or swing trading, your risk tolerance, capital size, and trading goals, as well as your trading strategy and the financial products you use to practice cryptocurrency trading, you will have to set more or less strict rules for risk and money management. It all depends on the aforementioned factors.
Whatever your choice, it is always important to use a stop-loss order once you open a trading position to limit losses in case of adverse price movement.
Investing in cryptocurrencies via the DCA (Direct Assets for Investment) plan
The approach to investing in cryptocurrencies differs from the approach to trading cryptocurrencies because the investment goal and horizon are completely different.
The main goal when investing in the cryptocurrency market is to benefit from the increase in the value of the cryptocurrencies you wish to purchase over time. Therefore, short-term fluctuations are irrelevant and will not harm you if you commit to the long term.
Since it is often difficult to identify the best entry points (more so in the volatile cryptocurrency market), a programmatic investment strategy or dollar-cost averaging (DCA) can be adopted.
Implementing this investment plan allows you to regularly purchase a certain amount of cryptocurrencies for a pre-determined amount regardless of the purchase price.
By accumulating cryptocurrencies at each time and price point, your position is flexible, making entry easier and avoiding trying to adjust the market to your liking.
Accept the nature of cryptocurrencies as risky and volatile but can sometimes be rewarding.
We should not forget that trading activity is inherently risky - and this is even more true of the cryptocurrency market for many reasons.
First, it's a relatively young market (about 14 years old), and the fundamentals that drive prices aren't truly known. Therefore, it's difficult to understand the market and predict future price movements.
Second, the cryptocurrency market is an unregulated market, meaning there is no central entity such as a clearinghouse or regulatory body to oversee or monitor it. This also means that traders and investors are unprotected.
The crypto market is highly volatile, meaning prices can move rapidly in either direction. It's not uncommon for a cryptocurrency price to gain or lose 25% or more in a single day, for example. Therefore, it's important to understand and accept that cryptocurrency trading is risky. However, the level of risk often equals the potential for gain.
In fact, the riskier the investment, the more likely it is to be profitable. The cryptocurrency market can be extremely rewarding with the right approach.
When prices fall and a bear market occurs, it is an opportunity to enter.
As with any significant market decline, some investors take advantage of the opportunity to buy cryptocurrencies that have fallen sharply and have returned to the valuations they believed were correct at the time of purchase. As evidence of this, fund managers continue to invest in the cryptocurrency market today to capitalize on the sharp price declines.
Cathie Wood, for example, CEO and CIO of US investment management firm ARK Invest, recently bought $3.2 million worth of Coinbase shares, bringing her total investment in the exchange to $5.8 million.
Following the collapse of cryptocurrency exchange FTX, Goldman Sachs said it plans to spend tens of millions of dollars investing in cryptocurrency-related companies. Therefore, the current bear market for cryptocurrencies may allow some investors to position themselves correctly and choose an entry point that will be profitable and rewarding in the long term.
Frequently Asked Questions:
What are the best rules for dealing with cryptocurrency price crashes?
Don't let your emotions get the best of you when dealing with a cryptocurrency market downturn.
It is necessary to have a plan for trading cryptocurrencies and adhere to strict money management rules.
Investing in cryptocurrencies via the DCA (Deep-Casualty Investment) plan.
The nature of cryptocurrencies is that they are risky and volatile, but they can also be rewarding at times.
When prices fall and a bear market arrives, it is an opportunity to enter.