The new year has ushered in a new round of volatility in the crypto markets as traders return from their holiday respite. While not nearly as wild as the opening days of 2014, which were still feeling the lingering effects of the 2013’s dramatic final quarter, this year’s opening price action makes trading exciting again.
If you’re a long-term investor, convinced that bitcoins are just too cheap to pass up at these prices, then by all means, dive in. But if you’re looking to catch the short-term swings, keep the following in mind if you don’t want to get taken for a wild ride:
1. Don’t get swept up by dramatic media reports on the price. They will paint a picture of doom and gloom and list all the things wrong with bitcoin after it has slumped, only to discover highly upbeat commentary following a rally. Using Warren Buffett’s famous adage, “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”
2. Don’t take an ideological stance on the matter. Don’t get married to positions. Don’t get angry or take offense when the market disagrees with you. Don’t try to take revenge against the market for its wrongdoings. What matters is what the market thinks (or will be thinking in the near future) when you close your position. It’s OK to be wrong sometimes. But….
3. If you have a well thought out plan, follow it and don’t panic. If your plan no longer makes sense, get a new one.
4. When in doubt, don’t bite. Especially in crypto trading, there will be plenty more opportunities to open a position.
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5. Look both ways before crossing the street, especially when it’s flat. These are the trickiest periods to anticipate the next move, which is often a big one.
6. Don’t step in front of a speeding train. A sudden rise or drop of 4% is not abnormal for crypto trading. It should not be automatically written off as an overbought or oversold situation, or a “mini-flash crash” ripe for correction.
7. If you miss the train, don’t jump on it. The opportunity is gone. Don’t force the issue for a few petty remaining satoshis (that may be) left in the opportunity. You can lose a lot more.
8. Technical indicators can be useful but don’t tell the whole story- even if an “expert” has “proven” the next move. Be aware that the market isn’t always loyal to the technical Bible.
9. Just because you pulled off four successful trades in a row doesn’t make you a god. Just because you came out on the right side of a 50/50 situation doesn’t necessarily mean you know what you’re doing. As the Financial Post put it very well at the start of 2014: you suck. Be humble and respect the markets, and they will respect you in kind and show mercy when you need it.
10. Do some due diligence on the safety of your bitcoins wherever they’re kept.