What To Do When Bitcoin Drops?
The crypto markets are incredibly volatile.. as I’m sure you’ve noticed by now.
The massive price fluctuations can trigger a plethora of emotions; from the highest highs to the lowest lows.
In the latest Bitcoin price drop, I lost the equivalent of a decent yearly salary in a single day.
Surprisingly though, the loss didn’t hurt as much as I would have expected.
I didn’t throw my computer.. I didn’t punch any walls..
I didn’t randomly start yelling at the clerk at 7 eleven.
I remained calm.. and there are a few reasons for that, which I’d like to outline in this article.
Here are a few things that helped me deal with it..
1) I didn’t look at my balance
Since I started keeping my coins in multiple locations, I stopped checking my balance every day.
If it’s a green day, I may check a few of my addresses on etherscan and tally up the balances, but on red days.. I don’t bother.
I’ve learned that it just puts me in a bad mood and it’s completely unnecessary.
Within my little circle of crypto-friends and associates, I’m one of the only people who doesn’t have Blockfolio or Delta installed. I just don’t see the need.
Using an invasive app (which requires access to personal info on my phone), to track my crypto-holdings doesn’t seem like a great idea.
Maybe I’m just paranoid. Either way, it’s not my thing.
Try uninstalling those apps and see how you feel.
2) I had invested solely in projects with strong fundamentals
If your investment strategy involves chasing shit-coin pumps, and if the market turns against you.. you may find yourself holding coins attributed to projects you don’t understand.
Trust me, it’s a lot more reassuring to be invested in VeChain, for example, knowing they’ve secured partnerships with multiple, multi-billion dollar companies.. than it is to be holding “dodgecoin” (or equivalent).
The more confident you are in the long term viability of the projects you buy into.. the easier it’ll be to handle the price drops.
You won’t panic sell, and if anything.. you’ll seize the opportunity and buy more to add to your stack.
3) I didn’t invest money I needed for my day to day expenses
Ensure that you’re diversified and always keep some fiat on the sidelines. In other words, don’t put your rent money into cryptos.
The long term trend is up, sure.. but when these downturns happen, it’ll be hard to deal with emotionally if you’re invested with money that you NEED for your day to day expenses.
When you’re tied to your investment emotionally, that’ll lead to emotional buy/sell decisions and typically, that doesn’t work out well.
Emotional traders are the ones who panic sell the lows, then FOMO buy the highs. Just relax.
4) I took the time to reflect on what I could have done differently
It may not seem like it at the time, but every crash is a learning experience.
It’s also a great opportunity if you know what you’re doing.
What most newbies don’t realize is that those big red candles mean massive profits to some traders.
Market newcomers tend to be perma-bulls, always on the long side of the trade.
Well, markets tend to crash a lot quicker than they rise, and if you know when (and how) to move to the short side, you can build your bitcoin balance while the masses are all panicking and making doom and gloom posts in Facebook groups.
A shorting how-to article and video will be posted soon.
In short (no pun intended).. to do so successfully, you’ll need to learn how to identify when those green candles are topping out and time the trend reversal.
Traders use multiple indicators for this..
– Bearish candles (topping candles and doji’s)
– Oversold ranges (30 and below) and bearish divergences on the RSI
– Levels of resistance (trend lines, fib extensions, moving averages etc.)
– Price action (when the price starts to make lower highs and lower lows)
I personally like using the Ichimoku clouds. The system is quite simple, really.. and it allows me to quickly identify when the market turns bearish.
I just look for when the price passes tenkin line (turquoise) passes below the Kejun line (yellow) and then, for further confirmation, I watch for when it passes under the clouds.
Here’s an example..
As you can see, when the price was above the lines, they acted as support and the price would bounce off it to the upside. Once the price passed below the lines and “clouds”, they served as resistance. You can use the position on the price in relation to the moving averages and the Ichimoku clouds to determine the trend. This is important because you should always trade with the trend. This means longs in a bullish environment and shorts in a bearish environment. The trend is your friend.
In the following example, if you were trading the BTC daily chart, you would have made your exist at around $15,000 and saved yourself a lot of stress as it tumbled much further.
If you were trading off a 4 hour chart, you would have got your exit signal much earlier.
As you can see, understanding some basic principals of technical analysis can save you a lot of money (and stress) as you can profit from these crashes instead of painfully watching the value of your portfolio decrease during the downtrending phase of the market cycle.
Admittedly, I didn’t get out in time during this last crash and it was a missed opportunity. It was a lesson learned though..
My mistake? I wrongly predicted that the “altcoins” would remain bullish and increase in BTC value as BTC corrected, thus maintaining, at minimum, a stable dollar value.
Instead of the money flowing from Bitcoin into projects like NEO, Ethereum etc.. people just pulled out of the market entirely.
With the uncertainty regarding Tether and the newly introduced capital gains “tax” imposed for cashing out of short term trades, it made sense, logically, that the alt coins would have a run up.
Didn’t happen. This crypto market is far from “logical”.
Now I know for next time…
5) Remember why you’re in this to begin with
Do you believe in the technology?
For me, personally.. I think decentralization, particularly when it comes to the financial system, is a boon for humanity.
Blockchain technology is a tool that can (and should) be used to strip power from the war-mongering psychopaths who are positioned atop the pyramid of control and restore it back to the people.
It’s something I strongly believe in.
If I adopted the herd mentality and panic sold every time the masses did, what does that do for the longevity and public perception of crypto-currencies as a whole?
We, the people.. now have the opportunity to liberate not only ourselves, but future generations as well.
I don’t want my kids being born into debt-servitude; being told they owe money to parasitic bankers for “interest” on debt they didn’t incur themselves.
Actually, they won’t be told that, nobody is. The truth is sugar coated, but it’s the truth nonetheless.. and it needs to end.
Luckily, with the advent of blockchain technology, these centralized entities can be rendered obsolete.
No need for an uprising, or direct, potentially violent confrontation. This can be the most peaceful revolution in history.
We now have the tool to make decentralization a reality, but it’s up to us to use it.