The cryptocurrency market is rarely calm and cannot be flat for a long time (the period when trading takes place in a very narrow price range, without sharp fluctuations in the rate). If you like calm trading, welcome to the stock or foreign exchange (FOREX) market.
The cryptocurrency market is self-regulating, and the asset price is formed only with the help of market mechanisms, and not by regulators. On the one hand, it is good that states cannot dictate their own rules of the game here. On the other hand, such a market is constantly subject to manipulation by those who have a bigger and heavier bag of money (the so-called “whales”). By instantly selling a large volume of assets, they can cause a sharp drop in the exchange rate and thus panic in the market, called FUD (fear, uncertainty, and doubt).
On falling trading charts using red Japanese candlesticks, it looks like blood flows, so the phrase “blood in the market” is often used in such cases, which indicates a large drawdown or great manipulation by “bears” (short-term investors).
What happens at this time to the majority of retail investors who have not managed to sell their assets at the highest possible price? Most of them will strive to dump the asset that has fallen in price at current prices as quickly as possible, even at a loss, just to save the deposit. As a result, the rate falls even more, and the panic only intensifies.
The period when panic sales dominate the market is called a downtrend – it is a steady downtrend when sales prevail over purchases. How to preserve and increase your capital during the period of great market turbulence, while not succumbing to panic (FUD) and not being led by greed (FOMO)? We will discuss this below in our article.
How not to panic (FUD)
Of course, it is important for any trader or investor to learn how to choose the right time to buy an asset or enter a position. This is done using technical and fundamental analysis. The rule “do not buy on highs, do not sell on falls” has not been canceled. It is equally important to calculate and correctly take into account the risk/reward ratio before opening a trade. It is recommended to adhere to a ratio of 1:3. Then even one successful trade will cover the losses from three unsuccessful ones. This is an important component of risk management.
It is also important to take profit on time, controlling your emotions, and fight the desire to stay in a position to increase potential income. In the event of panic sales, all profit at the moment can turn into a loss and make you regret ignoring trading discipline and the prevalence of emotions over reason.
One of the ways to reduce risks and ignore panic is to trade on the spot market. Without trading on the margin market with large leverage, even in the event of a wave of panic sales, you will not lose anything until you personally record a loss. Also, an excellent tool for ignoring and countering FUD scenarios is the use of algorithmic trading.
How not to be led by greed (FOMO)
The impact of FOMO (Fear of missing out) can be just as dangerous as FUD. This effect is directly opposite to the above-described feeling of panic and is observed during the moments of an uptrend (predominance of purchases over sales). In periods when individual assets begin to rise in price by leaps and bounds, thereby tempting not to miss out on profits and join the “crowd” (purchases of inexperienced retail investors, also called “hamsters”), it is important not to succumb to the herd instinct and strictly adhere to the trading strategy, money and risk management.
You should buy an asset only at the time of a drawdown, using indicators, patterns, figures, analytics. It is important to be able to control “order books” on exchanges, to identify false orders manipulatively placed by a market maker. The purpose of such orders is to confuse inexperienced traders and force them to sell at a lower price or buy at a higher price.
Without understanding the market, classification, and specifics of virtual assets, it is better not to listen to the advice of the “experienced” and not to buy an unknown cryptocurrency with poor liquidity and an unknown reputation. It may then turn out that the portfolio of assets will be overflowing with illiquid tokens and shitcoins, and an inexperienced investor was simply used in pump & dump schemes.
If you do not have the proper experience, are prone to emotions, but at the same time want to make stable money in the cryptocurrency market, the only right solution would be to transfer assets to trust the management of a company with experience and reputation.
We are all people, and as you know, all people sometimes make mistakes. We are often subject to emotions, fear, greed, the desire to listen to intuition, and not follow cold reasonable decisions. If you don’t have 4-5 years of experience in successful cryptocurrency trading behind your back, it will be very difficult to fight greed and fear, as well as make the right decisions with lightning speed, being with the market “one-on-one”. But resorting to tools and strategies using multi-vector algorithmic trading from FOBS Asset Management, you can not be afraid of the influence of fear or greed. Indeed, for any market movement, the algorithms already have the correct, pre-calculated solution that will help preserve and increase capital, and also allow you to steadily increase the balance of your investment portfolio.