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For those interested in the crypto market, you will surely have noticed that this year has been full of twists and novelties that have shaken the market, such as the recent descent into hell of the FTX exchange.
It’s never easy for an investor to face a crash, especially in a risky market like digital currencies. So let’s find out in this article our advice to better manage these periods of sharp declines in cryptocurrency prices.
Don’t let your emotions get the upper hand in the current cryptocurrency bear market
Emotion control is an essential aspect of any profitable trader and even more so when it comes to cryptocurrencies, as these assets are considered ultra volatile and ultra risky.
It is therefore important to learn to control your emotions to prevent them from taking over your ability to analyze the markets objectively and make your trading decisions.
It is an extremely difficult exercise in the cryptocurrency market, which can experience rapid and impressive price movements and today the many scandals do not help to keep calm.
In the short term, you have a cryptocurrency trading plan with strict money management rules
One of the essential trading tools to control your emotions and strengthen your trading discipline when trading the cryptocurrency market, especially in the short term, is to have a precise trading plan with specific risk management.
It is important to insist here on money management that allows you to protect your trading capital, because trading cryptocurrencies is an extremely risky business due to the unregulated nature and extreme volatility of the digital currency market.
Depending on your trading style (scalping, day trading, swing trading), risk tolerance, starting capital, trading objectives, as well as your trading strategy and the financial products you use to trade cryptocurrencies, you will need to implement more o less stringent risk and money management rules.
In any case, it is important to use at least one stop-loss order as soon as you open a trading position to limit your losses in the event of an adverse price movement.
Long-term, invest in cryptocurrencies via an investment plan (DCA)
Your approach to investing in cryptocurrencies is different than trading cryptocurrencies because your investment goal and investment horizon are completely different.
The main goal here is to profit from an appreciation in the value of the tokens you wish to buy over time, so short-term volatility is irrelevant to you.
Since it is often difficult to determine the best entry points (and even more so in the volatile cryptocurrency market), it is possible to adopt the strategy of programmed investment or Dollar Cost Averaging (DCA).
Setting up an investment plan allows you to regularly buy a certain amount of cryptocurrencies for a predefined amount regardless of the purchase price. By piling cryptocurrencies on each of your positions, you flatten your entry price and are not trying to “time” the market.
Accept that cryptocurrencies are risky and volatile, but potentially very rewarding
It should be remembered that trading is inherently risky, and this is even more so with the cryptocurrency market for many reasons.
Firstly, it is a relatively young market (about 10 years old), whose fundamentals driving prices are not really known. It is therefore more complicated to understand the market and anticipate future price movements.
Secondly, the cryptocurrency market is an unregulated market, which means that no central entity such as a clearing house or regulatory body oversees or monitors it. It also means that traders and investors have no protection.
Finally, it is an extremely volatile market which means that prices can move rapidly in either direction. For example, it is not uncommon for the price of a cryptocurrency to gain or lose 25% or more in a single day.
It is therefore important to understand and accept that trading cryptocurrencies is risky. However, the level of risk often equals its earning potential. In fact, the riskier an investment is, the more it means it is potentially profitable. And the cryptocurrency market can indeed be very rewarding with the right approach.
Cryptocurrency Bear Market: A Long-Term Opportunity?
As with any major market decline, some investors take the opportunity to buy tokens that have fallen sharply and are back at valuations they think are fair to buy.
As proof, fund managers continue to invest in the cryptocurrency market today to take advantage of the sharp decline in prices.
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. .
After the collapse of the FTX exchange, Goldman Sachs said it plans to spend tens of millions of dollars to invest in companies related to the cryptocurrency world.
The current cryptocurrency bear market could therefore allow some investors to position themselves, especially in the long term.
Also find this article on Café de la Bourse
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