Friday, December 22nd, 2017, will be remembered by many in the crypto industry as one of the most stressful days of trading they have experienced. Bitcoin dropped by thousands of dollars per coin, which triggered massive selloffs throughout all the alt-coins. While there has been some level of recovery already, just about everything is still down, and people are still quite nervous about what the coming days will bring.
As hard as it is to do, everyone needs to remember that ‘investing on emotion’ is never a good strategy. This applies equally to ‘fear of missing out’ (FOMO) buying and selling off due to huge drops. While this is easier said than done, there are some strategies you can put in place to help give yourself some protection during these downward swings, and keep you from making big mistakes by following your emotions when trading.
- Set Stop Losses – Whenever you buy a coin, make sure to think about how much to let it drop before accepting your losses. Think it through rationally based on your expectations, and known risks. Once you have determined that number, put in a stop-loss so that it will automatically sell should everything start crashing. This is a great way to minimize your losses during these types of events.
- Know Your Coins – Know what you are buying. If you only buy coins that you believe have great long-term value, these types of events won’t have nearly the impact on you. Of course, this isn’t really possible with traditional day trading, but if you are a mid to long term investor, you can be confident that even if your coins drop significantly today, they have a great chance of recovering and making you money over time.
- Stay Away from Sources of FUD – When there are major drops in the market, everyone is panicking. People in chat rooms, on Reddit, and just about anywhere else you go will be tweaking out and talking about selling. If you don’t have steady hands, this type of fear, uncertainty, and doubt, can really push you into making a stupid move based on not just your emotions, but the emotions of those around you. Staying away from these locations is a great way to protect yourself.
- Have a Plan – You should never buy or sell anything in crypto without having a plan of action in mind. This plan should include both when to sell if it goes up, and when to sell if it goes down. If you don’t have this type of thing in place, it can leave you very susceptible to trading on emotion, which will almost always lose you money.
Whether you are day trading, or buying and holding, everyone’s goal is to build wealth over time. Knowing how to handle difficult times in the market is one of the most important things you can do to accomplish this goal.