In the past few months, the phrase “to the moon” has been all over the internet, especially in crypto communities. A lot of crypto traders and investors have been enjoying the Bull Run of BTC for some time now. Bitcoin speedily moved from around the $10,000 region to the $60,000 region in less than 8 months. This is no doubt a massive achievement for the flagship cryptocurrency.
However, while the month of April has seen a lot of coins including BTC reach new all-time highs, traders have also been shocked with some unexpected dips. On the 18th of April, few days after Bitcoin reached a new ATH, the price of Bitcoin dipped by over 11%. The price bounced back up a little the next day and the day after.
On the 22nd of April again, however, the price of Bitcoin dumped from around $54,000 to $48,000. This swift dip lead to some liquidations. Some other traders holding spot positions sold their coins in panic. In this article, we will talk about some lessons we can learn from the sudden crash in the price of Bitcoin. This article will benefit all in the crypto space, especially new traders and investors.
Risk Management Can Never be Over-emphasized
A lot of traders lose everything to the market, not because they are poor technical analysts but because they fail to manage risks while trading. The number one rule of investing and trading is “Do not invest more than you can afford to lose”. Many traders have failed in this aspect. Thus, when swift downward market movements happen, they end up losing everything.
Long-term investors too need not invest all that they have at once. Investment or buying of Bitcoin and other cryptocurrencies can be done in batches rather than going all in at once. This method is called Dollar Cost Averaging. Short-term traders must avoid over-leveraging the market as this can easily lead to liquidation.
The Best Time to buy is When Prices are Low
Despite the market crash, a lot of Bitcoin investors are still in massive profits. It seems like common sense to buy when prices of crypto assets are low and sell when prices are high. But this simple principle is where a lot of traders and investors fail.
They do not buy when the price of the asset is low because they feel it may go lower and they do not sell when the prices of the asset is high because they feel it will keep on going higher. These are simply human emotions or feelings. The market is not concerned about how you feel.
A Bull Run isn’t a Straight Line Graph
When we hear the term Bull Run, we may sometimes expect the prices of the coin or token to constantly pump without slowing down. This is never the case with trading. A bull run always comes with dips. On the charts, higher highs are formed as well as higher lows.
Sometimes the lows may be intense market corrections, as much as 30%-40%. It is therefore not ideal to expect a non-stop upward movement of the price of a commodity during Bull runs. If it was that easy, everyone would have been a trader and everyone would be rich.
Take Profits When you need to
A lot of traders watch their assets ride all the way up, only to watch it go back down. For long-term investors, taking profits at regular or intermediate intervals may not be suitable. But for short-term traders, it is necessary to pay yourself while trading. After a good upward movement in price, it is vital to pay yourself.
As a crypto trader or investor, you should always expect the unexpected. Sudden events and news can always destroy even the best technical analysis setup.
Hence, it is essential that a trader applies proper risk management, avoids over-leveraging, buy assets when the prices are low and sell when it’s high, expect market dips and pay yourself when you need to. Sticking to these principles will not only make you profits, but also preserve your profits and ensure that you remain a good trader forever.
Disclaimer: This article is not trading advice. TheDechained holds no liability for investments made on the basis of this information. We recommend independent research before making a decision to invest.