5 Pieces of Advice for Crypto Crashes

in #life7 years ago (edited)

At the time of writing today, Bitcoin is down 25% in the last 24 hours, Ethereum down 35%, and the overall market cap of all cryptos down 26%.

I know what this feels like - I've been there. Working as an algorithmic trader for the world's largest hedge fund, and trading my own portfolio for over a decade, I've made and lost and re-made and re-lost more money than I care to remember. It's part of the process.

Here are a few lessons I've learned from a life experience of ups and downs in the markets.

1. Don't Lose Perspective

Days like this have happened before. Days like this will happen again. In the larger scheme of things, they're nothing special.

Don't go around screaming that Bitcoin (or even worse) crypto is over. In my opinion this may in fact be the early days on 'the flippening,' and Bitcoin's dominance may in fact be coming to a close, but Bitcoin is not disappearing overnight, and overall crypto is still here to stay.

If this feels like the end of the world, talk to and heed the advice of people who have seen this before and can keep a level head even in the craziest of market situations. On Steemit, I recommend someone like @jrcornel with a unique and valuable perspective.

2. Don't Resist the Market

Smart investing is about reading the market and constantly reacting as it evolves - the best investors and traders are not married to their opinions. Some, like Warren Buffet, some longer timelines than others, they might react only after monthly data changes rather than weekly because they invest for years at a time, but all good investors know their unique perspective - their personal timelines and accepted levels of risk, and they know when to admit defeat and get out of the way.

The moment you try to get the market to react to you, rather than react to the market, you've lost. Get any crazy ideas in your head of buying to push price back up, or buying to help the overall crypto market out of your head, you will get runover.

3. Missed Gains are NOT the Same as Losses

In times of uncertainty, admitting to yourself things are too crazy to make good predictions about is hard - the thought of sitting on the sidelines if there's a 10% chance of 100% returns keeps people fully invested, even when there's a 90% chance of -30% losses.

Thinking of 'missed returns' as the same as 'lost money' is dangerous, and inaccurate. If you sell for a 30% loss, you forever have 30% fewer funds to now grow. If you miss an opportunity that only a few lucky people found anyway, you still have just as much money to grow, and will be able to take much better advantage of the next 100% return opportunity that comes around with less risk.

In other words, it's OK not to HODL 100% of your portfolio in risky investments all the time. When the market becomes volatile - as it did before the majority of this dip began - selling some investments into cash to lock in gains and protect from uncertainty is fine.

Certainly selling all of your investments in a downturn doesn't make any sense- you lock in losses AND forgo future returns. But when uncertainty rises in the market keeping some in the market and taking some out is a good balance to ensure you can capture upside gains, and have free money to buy the dip.

If the market rallies 30% and you were out, that is NOT the same as staying in and the market falling 30% only to sell at that point.

4. Avoid Margin Trading

It can be tempting to buy or sell on margin when markets move a lot - when rising it seems like buying on margin it just a may to maximize your gains, and when falling it seems like margin can be a good way to buy the dip.

Certainly margin helps when you're right, the trouble is that margin can be disastrous. Consider that with 2x margin, a 10% gain becomes a 20% gain, but a 10% loss becomes a 20% loss - this leads to the real problem: if you lose so much as to trigger a margin call you are FORCED to sell for a loss. You lock in losses, destroy your capital, and forever have fewer BTC/ETH/whatever in your portfolio than you would, even when/if the market rallies right back to where it started.

Unless you are an extremely disciplined trader with a strong grasp of the compounding, negative effects of margin calls, avoid margin trading at all costs.

5. In a Volatile Market, Tried and True Wins

Remember that even though ETH and BTC are falling, the established leaders usually come out on top in volatile markets. There are a number of tempting alts out there, but for the time being BTC and ETH remain top bets.

Good luck out there!

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Thanks for the advice. Everything is helpful to a newb.

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@mattroconnor thanks man for your perspective.