An Effective Crypto Trading Strategy To Avoid FOMO

Since its inception in 2009, the Bitcoin and cryptocurrency markets have seen many cycles of growth and decline. And with so much to gain -and to lose-, investors may feel what is called “the fear of missing out” or FOMO. Likewise, there have been some down cycles in all cryptos, and as much as it may be more difficult to profit during the bear market, it is not impossible. Here, we discuss five strategies that you might want to employ during a market dip.

Between China threatening to ban all Bitcoin mining and Elon Musk tweeting about how Bitcoin is environmentally unsustainable, the prices of many cryptocurrencies have plummeted recently.

The CEO of Tesla has had an almost hypnotic control of the cryptocurrency market. As Andres Bylud noticed: “One might think that he would use that power to increase the value of Tesla’s Bitcoin holdings, but his actions had the opposite effect this week. The mercurial business genius may very well flip-flop again, unleashing another whipsaw sea change to Bitcoin and other digital currency prices”.

So, is it possible to make money in this market? If so, how?

Cryptocurrency cycles

Since its inception in 2009, the Bitcoin and cryptocurrency markets have seen many cycles of growth and decline. And as much as it may be more difficult to profit during the bear market, it is not impossible. Here, we discuss five strategies that you might want to employ during a market dip. Important note: these strategies are not 100% guaranteed to make you money, however!

Buy the dip

Hedge funds and big investors are “buying the dip”, so why shouldn’t you?

In a recent Bloomberg interview, Felix Dian, the former Morgan Stanley trader, and current fund manager said that Bitcoin’s volatility actually shows why hedge funds are in the digital-currency game: “to ride boom and bust cycles with diversified bets so clients don’t get killed at times like this”. According to Bloomberg, his $80 million crypto-focused fund at MVPQ Capital is up 14% in May and has more than tripled in value this year. In contrast, Bitcoin has plunged almost 30% this month, cutting the advance for 2021 to 42%.

What is more, data from research firm Chainalysis shows that professional investors are buying Bitcoins during this sale at unprecedented levels. The report suggests that “Big investors bought 34,000 Bitcoin after reducing holdings by as much as 51,000 bitcoin in the last two weeks”.

Simple Dad advice: Aim to buy low, sell high; try not to buy high, sell low. Try to look at the price trend, and as Cryptocurrency facts advise: “if it is at the highest point it has been in the past 24 hours (days, weeks, etc), that is inherently riskier than buying at a short term low. The best time to buy is when there’s blood in the streets… even if it is your own”. Looking at the state of many cryptocurrencies at the moment, it would suggest that the time is now.

Don’t fall prey to FOMO

Keeping up to date with the latest news in cryptocurrency is vital, but too much information can definitely be a bad thing.

FOMO (an acronym of ‘fear of missing out’) signals a “trader’s tendency to get carried away with wishful thinking after seeing positive price action or news, sometimes overlooking fundamental signals in a haste to jump aboard the next rocket ship to the moon”.

While no one can predict the future, some cryptocurrency influencers may actually have a hidden interest in causing FOMO, in order to manipulate the markets.

HODL

One way to survive a crash in digital currencies is to Hold On For Dear Life, a strategy that many in the industry refer to simply as HODL. As the saying goes, “if you don’t sell, you don’t lose”. This strategy is about buying cryptocurrencies and then holding them for a long period of time, regardless of fluctuations. Of course, such a strategy is risky, because some tokens simply die or go into oblivion after a while.

Exiting to fiat

According to Forbes, Crypto Asset Management often uses this approach when these digital assets decline, said Tim Enneking, the firm’s managing director.

“Exiting to fiat requires that you be able to time the market, both when you exit and again when you return,” he said. “The smartest strategy is to allocate money you can afford to put at risk, and then stick with your plan regardless of the variations in the market.”

Shorting Bitcoin

Bitfinex, Poloniex, Kraken, and Binance all offer this functionality. Shorting is a risky strategy, which should only be used by sophisticated investors, though. In summary, “shorting is a strategy used when an investor anticipates the price of an asset will fall in the short term. In common practice, short sellers borrow an assen, paying a fee to borrow, while their position is in place”.

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