Volatility is, indeed, one of the most troubling parts of crypto. Both a blessing and a curse, it brought us the prices that often surge extremely high and attract people with the promise of profits, only to come crashing down just as strongly, and either causes disappointment or fear among newcomers.
Not to mention that many get severely impacted by this price behavior due to the FOMO, or fear of missing out, which causes them to make rash actions which once again result in the loss of capital.
So, how exactly should you deal with this? What is the right thing to do, and the best way to behave during times of volatility in the crypto market? That’s what we want to discuss today.
How to Avoid Making Mistakes While Trading Crypto
Making massive mistakes when trading crypto can happen regardless of whether the prices are rising or falling. With that in mind, here are a few things to keep in mind, as they might just be enough to save you from stress, as well as financial losses.
Don’t be Tempted by FOMO and FUD
FOMO and FUD are the two terms that experienced crypto traders are very much familiar with, and they had to conquer both in order to become experts in the trade.
FOMO, or fear of missing out, and FUD, also known as fear, uncertainty, and doubt, are your worst enemies while trading, as they influence your choices. FUD usually refers to negative market sentiment, when traders and investors are tempted to withdraw their funds. Let’s say that you bought some coins at a certain price, and then the price started falling. If you withdraw now, you will experience losses. However, FUD tells you that it is better to do so and experience small losses than to wait for the price to sink even lower and experience bigger ones.
FOMO does the opposite, and as the price is rising, you might feel tempted to withdraw in order to make profits in fear that the situation will turn at any moment. Both of these are just your feelings playing tricks on you.
Stay Calm and Stick to the Plan
When you approach crypto trading, you cannot do it randomly. You need to have a plan — a strategy. Most strategies work, but the key is to find the one that you are comfortable with and to keep in mind that you need to stay calm during volatile markets and allow the strategy to work.
That often means sticking to your plan in the long-term, and having to wait for weeks, months, or even years for it to pay off. However, if you can remain calm, collected, and patient, you are likely to achieve profits before long.
Of course, this is all based on the assumption that you do not depend on the money that you invested.
Don’t Invest Money That You Can’t Afford to Lose
When the prices are growing, it is very tempting to go all in and invest everything you have. After all, it is an opportunity to significantly increase your available capital, right?
It would be if the crypto markets were more reliable. As things are, however, this is not the case. The situation can turn in the blink of an eye when it comes to cryptocurrencies, as all the markets need is one bad news in order for everything to fall to pieces. If it happens, you can’t have the money you need for surviving the month on the line.
Another major rule when it comes to crypto trading is to never put all of your eggs in one basket. Not unless you really know what you are doing.
There are many investors out there who invest everything in Bitcoin, that much is true. However, they know the rules of the game, and they know what they are doing. Many of them are ready to wait for years for Bitcoin’s price to rise again after crashing, and since they understand the market cycle, they have prepared adequately.
However, when it comes to other coins, things are not as clear. Especially if you wish to invest in lesser altcoins, which may end up dropping and eventually dying. In other words, you can’t afford to invest everything in a single coin and hope that it will survive whatever the market throws at it. The safest way to invest, and the best way to ensure profits, is to diversify your portfolio.
Investing in digital currencies requires a number of things, including a good strategy, knowledge of the market, and an iron will. Mastering the skills necessary to trade and invest in this sector of the financial industry is not easy, but if you can do it, you will have a good chance at making decent profits. There are many pitfalls along the way, however, and your top priority is to avoid them if you want an opportunity to see any profits at all. It is not easy, but it is also not impossible if you play your cards right.