Bitcoin and every other cryptocurrency has suffered heavy losses over the past few weeks, this has caused many people to panic sell, panic buy, and get incredibly nervous about the market as a whole.
I’ll be the first to tell you that if you are worried, or even seriously concerned, you are not alone. Speaking with average Joe’s to very wealthy (in crypto) and to those previously quite wealthy (in crypto) I have found that there is concern across the board. If you are new to the marketplace, it is totally understandable that your hands may be weaker than those who have been through price drops before.
In previous articles, we addressed what may or may not be causing these dips, and lately, there has been news of countries’ markets across the globe also suffering large dips. All of these bits of news have an effect on our wellbeing and our rational thinking ability, so here are a few tips to help you get through this dip, and future dips too. We’ll start with what to do in preparation for the next dip first (they are inevitable), and then look at how you can get through this one.
Before a dip – Never buy more than you can afford to lose
I keep repeating this, and so does much of the community. I can’t stress this enough. If you can afford to lose $50, only spend $50! If you can afford to lose $50k, spend it, but never go outside of your means. Many banks this week in the US and one that we know of in the UK have suspended all cryptocurrency purchases on credit cards. This has caused outrage in the community. On speaking with a friend and insider at BoA, he stated to me that there were huge defaults on credit card payments from accounts purchasing cryptocurrency at the end of both December and January. This is exactly what people should not be doing. These people have spent way beyond their means, and are now unable to pay their bills. While not everyone who bought cryptocurrency with a BoA credit card defaulted, there were enough for the bank to attempt to mitigate its risk.
Before a dip – Know what you are buying
Coinmarketcap.com lists 1514 cryptocurrencies. I have 13 cryptocurrencies in various wallets and exchanges within my portfolio, and today I purchased a 14th in an ICO. My personal goal is to diversify to no more than 20. All of my coins besides the new ICO are in the top 25 coins by market cap. Most of the top 50 coins are trustworthy in my opinion. Some, however, aren’t. Do your research and know your coin. You can apply the same principles to researching an ICO to researching your next purchase. Not every coin is useful and not every company is trustworthy. Dips are when coins without substantial technology or real applications crash hard. Some will not recover from this dip.
Before a dip – Plan your moves
Get Coin Stats, if you are using Binance, link the API to your Coin Stats application. The next step is to know what price you bought each asset at. After that, if you intend on trading, decide on at what price you want to sell, and how much of the asset you want to sell. If you are using Binance, you can set these sell limits to automatically sell the quantity you want at your predetermined prices (low and high). If you use a hardware or desktop wallet, you can set price alerts in the Coin Stats app to let you know if your coin(s) are about to dip to your minimum sell limit, or if they are rising to your ideal selling price.
During the dip – Stay calm
Don’t freak out, don’t panic sell.
If you feel that you might need to sell, average out your previous buys and work out the average cost you paid. If you sell at the current price, will you lose money, gain money or break even? Decide if that is the result you want. Make the decision to sell based on fact, not on impulse or emotion. It’s been said many times before, but its true; You can only make a profit, or lose money once you sell. Another factor to consider if you sell during a dip like we’ve seen recently, you are adding to the price drop. Today we have seen a considerably lower volume of sells, and the price has started climbing. This is not to say that it will continue to climb just yet. It is just to say that once selling slows, prices rise. Sometimes, if you are lucky enough to have spotted a dip before it gains traction, you are able to short the currency by selling it at a high and buying back in at a lower point to increase your position. This can be a risky move as you might need to act incredibly quickly to buy back in. I have personally made this mistake, and to be honest, I don’t know a single person that attempted this play who hasn’t got it wrong at least once.
Alright, let’s get one thing straight. It would be incredibly irresponsible to blindly buy any coin during a dip. The first thing you need to consider when you think about buying in a dip is: What am I buying? Only buy coins that you are confident in. I repeat this over and over, and it’s so tiring, but its necessary. Don’t throw money at a coin because it dropped below $1, or $0.10 in the hopes that you will hit a 2x, 10x or 100x multiplier as the prices rise. Make sure that the coin has a use and that it has real-world applications. Generally, you are safe buying into BTC or ETH during a dip, and that brings me to my next point. Know where the support is. Go to TradingView and draw in at least the last three levels of support. Then use dollar cost averaging to purchase the asset at multiple price points to minimize risk and average out profits. While you might be lucky and put all your money in at the perfect point, we’d rather teach and apply strategy over luck.
During the dip – Hold (HODL)
This is another misconception. There is no rule that says that holding onto a coin means it will bounce back and then start to grow as it had in the past. This takes us back to knowing the coin, the developers and the company (if applicable). We can use Ripple as an example here. Ripple hit an ATH of over $3 and earlier today hit a low of $0.59. around 25% of my portfolio is XRP, and even though it has reduced nearly 6x in value, its a coin worth keeping because the company behind it is actively working to promote the business and the use of XRP. This fact gives me confidence in the coin. TRON, on the other hand, has had a very similar fall, however, if I had bought TRON, I would not be holding on to it now, I would have either exchanged it for Ethereum/Bitcoin at my breakeven point, and I might have even considered selling at a small loss because I don’t have very much faith in the team, their reported products or the technology, which, based on the whitepaper is just an amalgamation of other whitepapers. I might be totally wrong with TRON, but in this sort of scenario, holding might not be the best option, and that is a conscious decision that you need to make during a dip for each of your assets.
Dips are generally a negative experience for everyone, so use the opportunity while you are not actively trading to improve your knowledge and skills to make better decisions in the future. Use TradingView to practice trades, they have incredible tools available for free. Surround yourself with positive, intelligent thinkers who are objective about their decision making. Use the time to analyze new coins, ICO’s and use it to get rid of the junk in your portfolio.