It’s natural to feel uncertainty when your cryptocurrencies start to drop. Volatility is an inherent feature of the cryptocurrency market, and it’s important to understand that cycles of up and down are part of its operation.
Here I explain what you can do when cryptos are falling, focusing on key strategies:
1. Stay calm and avoid emotional decisions
First and foremost, do not give in to panic. Sudden price drops often lead to impulsive decisions that can result in unnecessary losses. Take a moment to assess the situation and remember your initial investment goals. Did you invest for quick gains, or do you believe in the long-term potential of the project? This will guide your next step.
2. Review your investment strategy
If you have a long-term strategy (hold), a drop can be an opportunity. If you believe in the project's future, you might consider declines as moments to buy more at a lower price. This strategy is known as "DCA" (Dollar-Cost Averaging), which involves investing a fixed amount of money periodically, regardless of the price, helping you average your purchase price over time.
If your goal is short-term trading, it’s crucial to have defined loss limits and stick to them to prevent a small drop from turning into a large loss.
3. Diversify your portfolio
Don't put all your eggs in one basket. Distributing your investments among different cryptocurrencies (and if possible, also in other types of assets) can help mitigate risk. If one cryptocurrency falls, the others might not drop as drastically, or even rise, offsetting some of the losses.
4. Research and stay informed
Take this time to thoroughly research the projects you invested in. Are their fundamentals still strong? Are there news or developments that justify the drop, or is it simply a market correction? Avoid falling into "FOMO" (fear of missing out) or "FUD" (fear, uncertainty, and doubt) generated by rumors, and always seek information from reliable sources.
5. Consider stablecoins
If volatility concerns you greatly, you can convert part of your volatile cryptocurrencies into stablecoins. These cryptocurrencies are designed to maintain a stable value (usually pegged to a fiat currency like the US dollar) and can serve as a temporary refuge for your funds while the market recovers.
In summary, when cryptos are declining, the most important thing is to stay calm, have a plan, diversify your investments, and keep researching. The cryptocurrency market is cyclical, and understanding this will help you make more informed decisions.