Investing in any financial asset can be a tricky exercise, but this is especially true for the fast-paced cryptocurrency market, which presents its own unique set of pitfalls and challenges.
A popular saying dictates that it takes 10,000 hours to master a skill and become an expert. In cryptocurrency time, this is measured in market cycles, which put every trader through a few rollercoaster rides of volatility as a crash course in how to navigate the market.
Here are five important lessons every trader should learn when it comes to investing in cryptocurrency bull markets.
Rule #1: Nobody goes broke taking profits
Since the early days of cryptocurrency, the community has prided itself on its “hodl” nature, with the volatility in the price of Bitcoin (BTC) and other tokens that have shaken the coins from the trembling hands and into those of the true believers who make up the crypto aristocracy of the world today.
Few like to mention the saying “they are not your keys, they are not your cryptocurrencies“, partly due to the fact that Liquidity and velocity of money are important factors in a healthy functioning market, but also because simply hanging on as the market rises and then falls has resulted in fortunes made on paper simply vanishing with the onset of a bear market. .
When a cryptocurrency has made significant gains, especially if the price went parabolic in a near-vertical line on its trading chart, the best move is to take profits and allocate those funds to stablecoins or different assets whose trading cycles are not exhausted.
The fact is that nothing goes up forever, and in the cryptocurrency market, the fall can often be just as fast and hard as the rise.
If selling a token is difficult due to personal ties and a long-term bullish outlook, it is useful to consider that after a parabolic move and a consolidation phase, it is possible to purchase even more tokens with the funds collected once the dust settles. .
Rule #2: Don’t rush out of fear – there’s always another coin
An experience that almost every cryptocurrency investor has gone through is that of having the urge to buy a particular coin and resisting it, only to see it take off like a rocket the next day and launch into a two-week run that multiplies its price tenfold.
At the moment, the fear of missing out on potential gains (FOMO) kicks in and is so strong that a large market order is placed and filled at the top of the market. The result is usually an unexpected pullback where the newly opened position loses half of its value within a few hours as early holders follow rule #1 and take profits.
Don’t get carried away by the FOMO!
Once a coin has started to rise, simply watch it from the sidelines. Mentally congratulate those who have caught the raise and repeat the following: “There is always another token.”
A quick study of past bull markets will show lots of token pump and dumps in both bull and bear markets, proving that there is no shortage of opportunities to get in early on high-flying projects and make solid profits amid rapid cycles. of hype for which the cryptocurrency market is known.
Rule #3: It’s not going to be like the last time
Technical analysts often like to claim that cryptocurrencies follow a series of predictable cycles., which they use to validate certain pieces of their craft. Holding this perspective allows them to apply past market cycles to the current price chart as a way of predicting what is to come.
In 2021, this belief led to year-round proclamations that Bitcoin was going to hit $100,000 and beyond, only to top out below $69,000 and limp through the end of the year with no sign of the tan. expected cap.
Over the course of the year, the market was compared to the 2017 bull rally, then the 2013 rally, and finally to a combination of both rallies, as chart experts struggled to explain where the market was in the cycle. market and where it would go next.
In the end, the 2021 rally saw a unique double top unlike any previous market cycle and could possibly extend into 2022 in line with the prediction by some that the four-year cycle is getting longer.
The main takeaway is not to expect the market to behave as it has before and focus on trading the market that has. Follow price trends and make sure you keep rules 1 and 2 in mind.
Rule #4: Handle trend cycles carefully
In every cryptocurrency bull cycle, there is a sector that comes out of nowhere to dominate the headlines and produce 100x gains.
In 2021 we saw the rise of memecoinsthe advent of non-fungible tokens (NFTs), and the advent of “play-to-earn” games, much to the chagrin of Bitcoin maximalists and those “in it for the tech.”
When new trends like these start to emerge in the cryptocurrency market, it’s wise to be aware of the power of the crypto hype cycle and, if possible, get a little exposure to some of the cryptocurrency tokens that haven’t yet been released. started to move.
This is strictly a short-term game and is most often a case where Rule #1 applies in full, as the vast majority of newcomers to the altcoin market break out within the first year.
Rule #5: Don’t spend all your time focusing on the cryptocurrency market
This last rule is intended to help maintain a healthy life balance and peace of mind. There is much more to life than investing in cryptocurrencies, or any other market.
Just as all investment portfolios should be well diversified, so should your day-to-day experiences in the world at large.
The vast majority of big cryptocurrency moves happen in a matter of days or weeks, and the rest of the year is filled with sideways and range trading.
It’s important to do a good amount of research, make your selections, follow Rule #1, and then use some of those earnings in other parts of life to have more fun and diversify your experience to better enjoy the most precious asset of all: the weather.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investment and commercial movement implies a risk, you must carry out your own investigation when making a decision.
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