Wednesday, October 5, 2022

How to Maximize Periods of Cryptocurrency Market Price Slumps

Trading digital currencies come with a lot of uncertainties, owing in part to the volatility of the industry. Understanding how the market works, and how to navigate the erratic periods is a crucial skill that will determine how successful a trader will be.

With a lot of macro and microeconomic factors constantly impacting the outlook of the digital currency ecosystem, we can expect extreme price swings in response to varying reactions from investors.

At the moment, the digital currency ecosystem is experiencing a boatload of these economic influences and this accounts for why Bitcoin (BTC), the industry’s flagship currency plunged from a high of $68,789.63 to a low price of $39,446.82 it is currently trading at.

This guide details some of the things both retail and institutional investors can do to stay safe when the market comes crashing down. While a trader may only have to adhere to some of the points listed, the goal is to ensure a minimal loss and CryptoMarketsBeat hopes to arm traders with the right information to achieve this.

How to Maximize Periods of Market Downtrend

Trade With Less Emotions

It is not uncommon to find the mainstream digital currencies shed off a very large percentage of their prices or value within a very short period of time. The irony is that prices can go both ways, and could either be bullish or bearish. 

A common observation is that many traders in the cryptocurrency market panic during this period and their first instinct is to sell off to minimize losses. While this may be a good strategy in some cases, it is not entirely an ideal one in all situations. Depending on where the market is diving, it is recommended that traders keep their emotions in check and try to research some of the fundamentals behind the erratic price moves.

For what it is worth, the price of BTC may tank if there is a bullish announcement from the United States Federal Reserve with respect to an interest rate hike. Depending on the nature of the announcement, investors may react in tandem, but without a lasting plan to stay in the market.

In case of such reactions leading to a price surge, traders who buy BTC at that time drawing on their emotions may realize soon enough that they have bought the top, hence may be caught up in a long HODLing situation.

The same holds through for periods of price falls, as many traders are poised to exit their positions in the advent of unfavorable occurrences, most of which may not last. It is thus a vital skill for traders and investors to keep their emotions in check, and analyze the market holistically before making any major investment move.

Keep Most of Your Assets in Stablecoins

It is better for traders, when unsure of the direction of a market trend, to keep their assets stored as stablecoins. Stablecoins are digital tokens whose prices do not fluctuate the way BTC, Ethereum (ETH), or other major assets do.

Active traders understand in-depth the role of stablecoins in the cryptocurrency market as they are used to hedge positions against volatility. When the market is crashing down fast, it is recommended for traders to find a very good exit point and safeguard their assets in stablecoins. Stablecoins come in handy for a situation like this as it is better not to risk available capital for a gain that may or may not come.

Trade Only Established Coins

By established coins, the reference is to digital currencies like Bitcoin, Ethereum, Binance Coin (BNB), Solana (SOL), and Cardano (ADA) amongst others. These coins have a huge market capitalization, a very stable and diverse community, and a developer ecosystem that basically serve as insurance for their future price performance. 

Take Binance Coin, for instance, a price depression is considered a very good discount for professional traders as they believe the coin, native to the Binance cryptocurrency exchange has a wide range of utilities that will continually position the coin to be in high demand amongst millions of users utilizing the trading platform.

Ethereum, Solana, and Cardano as blockchain networks with capabilities to host applications are also recommended assets to trade in times of price uncertainties with respect to their inherent use cases in their ecosystem.

Make Use of Risk Management Tools

The primary way investors or traders get involved with the digital currency ecosystem is through cryptocurrency exchanges, especially the mainstream centralized trading platforms. These platforms often come with embedded risk management tools including provisions that enable traders to activate Stop-Loss on their active trades.

Setting a Stop-Loss order can help minimize risks in cases of unexpected price slumps, and thus help the trader cushion all kinds of losses to erratic market movements.

Be a Pro at Fundamental and Technical Analysis

Even though the cryptocurrency market responds to emotions in so many ways, trading the nascent asset classes should be accompanied by a deep dive into key fundamental and technical analysis before any position is taken.

These analyses are important because the pattern of movement of crypto assets has been adequately documented and can easily be used to determine the future price movement when a series of technical tools like the Relative Strength Index (RSI), and the Moving Average Convergence Divergence (MACD) is deployed.

Exchanges typically have these technical indicators built-in and there is tons of literature out there that can help educate a trader on how to use these tools. With adequate knowledge of fundamental and technical analysis, any investor will be closer to maximizing periods of price slumps.

Key Takeaways

The crypto market will always move up or down, however, the degree of the price swings may taper down as the market keeps seeing the influx of more capital to help cushion the inherent volatility. 

Staying profitable irrespective of the trend in the cryptocurrency market is a decision a trader must make. In making a decision to be profitable, key things must be taken into account and strictly adhered to, and some of these are what has been highlighted earlier in this article. 

To maximize any situation, users need to invest actively and seek the right knowledge to take advantage of the inherent earning potentials in the market.

Godfrey Benjaminhttps://cryptomarketsbeat.com
I'm just a nerd who wants the world to know about the unique capabilities of blockchain and digital currencies

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