No matter how experienced you are in trading, nothing can be done to protect a person from the power of cryptocurrency price fluctuations. Currently, Bitcoin’s (BTC) volatility, the standard measure of daily fluctuations, stands at 64% annualized. For comparison, the same metric for the S&P 500 is 17%, while the volatility specification for WTI crude is 54%.
However, it is possible to avoid the psychological impact of an unexpected 25% intraday price change by following five basic rules. Fortunately, these tactics don’t require advanced tools or large sums of money for times of high volatility.
Plan to refrain from withdrawing money in less than 2 years
Suppose you have $ 5,000 to invest, but it is quite possible that you will need at least $ 2,000 of that amount within 12 months for travel, car maintenance, or some other task.
The worst thing you can do is make a 100% crypto allocation because you may have to sell your position at the worst time of your life, possibly at the bottom of the cycle. Even if one considers using the product in decentralized funding pools (DeFi), there is still a risk of depreciation or hacking that compromises access to funds.
In short, all funds allocated to cryptocurrencies should have a two-year vesting period.
Still average cost in dollars
Even professional traders are carried away by the fear of missing out (FOMO), giving in to the urgency of building a position as quickly as possible. But, if everyone is getting returns of 50% and above consistently and even the meme coins are showing stellar returns, how can you stay on the sidelines and just watch?
The DCA strategy is to buy the same amount every week or every month, regardless of market movements; for example, buying $ 200 every Monday afternoon for a year eliminates the anxiety and pressure caused by the constant need to decide whether to add a position.
Avoid buying all positions in less than three or four weeks at all costs. Keep in mind that the rate of adoption of crypto is still in its infancy.
Do not use too many indicators when analyzing
There are countless technical indicators, including the Moving Average, Fibonacci Retracement Levels, Bollinger Bands, Directional Movement Index, Ichimoku Cloud, Parabolic SAR, Relative Strength Index and more. If you consider that each has multiple configurations, the possibilities for tracking these metrics are endless.
The best traders are experienced enough to know that it is more important to read the market correctly than to choose the best indicator. Some prefer to follow correlations with traditional markets, while others focus exclusively on crypto price charts. There is no right and wrong here except to try to track five different indicators simultaneously.
Markets are dynamic, and in crypto this is especially true given the speed at which things change.
Learn when to retire
Eventually you will read the market incorrectly while finding altcoin funds or seasons. Every trader gets it wrong sometimes and there is no need to compensate by immediately increasing the bet size to recoup losses. It is precisely the opposite of what one should be doing.
Anytime you catch a “bad break,” step aside for a few days. The psychological impact of losses is a heavy burden and will negatively impact your ability to think clearly. Even if a clear opportunity presents itself, let it slip away. Go for a walk or try to organize your life outside the store.
Truly successful traders are not the most successful, but those who survive the longest.
Continue to invest in the winners
This could be the most difficult lesson of all, as investors have a natural tendency to profit from our winning positions. As previously stated, the volatility of the crypto market is extremely high, so aiming for a 30% gain will not cover your previous (or future) losses.
Instead of selling the winners, traders should buy more. Of course, you shouldn’t overlook market data or general sentiment, but if your expectations remain bullish, consider adding to the position until the overall market signals some form of weakness.
You will eventually catch a 300% or 500% gain by being courageous and keeping the most profitable positions. These are the returns you would expect upon entering such a risky market, so have no fear when they appear.
Every rule is meant to be broken
If there was a roadmap for successful cryptocurrency trading, many people would have found it after many years and the returns would fade quickly. That’s why you should always be prepared to break your own rules from time to time.
Don’t blindly follow the investment advice of experienced influencers or fund managers. Everyone has their own risk appetite and their own ability to add positions after an unexpected setback. But, more importantly, make sure you take care of yourself along the way!
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.