Welcome to CRYPTO!
How to Curb Our Enthusiasm.
Did you buy the Bitcoin Top and lost 50% of your investment?
Did you exit at a loss feeling completely disgusted with the Crypto Market?
You are probably now thinking that this rare opportunity you’ve been presented with was just a scam to lure you in right at the top. You might be thinking that government was right telling you this is a dangerous game and you will lose your money.
Allow me to explain why they are wrong with this assessment.
Crypto is not a scam, but a pure free market. You just bought the top of a bubble. It can happen to anyone.
As in other markets, Crypto can be subject to manipulation and bad publicity may harm prices, but eventually, it comes back again since there is utility and strong communities that are trying to create better financial systems and networks.
It is not a scam, you just bought the top, you bought in the mania phase. There are many signs of a bubble and usually when you are in a state of euphoria reality kicks in.
No! It is NOT Raining Money in Crypto
Gif downloaded from (Acegif)
We are flooded by emotions of excitement when entering the cryptocurrency world. It is a promising field with many opportunities and stories of many that got very wealthy from their participation in this field.
Excitement and profit don’t last for long though. This market is very volatile and prices fluctuate so fast that the initial excitement may transform into despair in just a matter of hours.
Entering this market and investing when the prices are up by 1000% within a few months means we are undertaking a huge risk and our early enthusiasm can quickly change to anger and despair.
Phases of a Bubble
Crypto is a jungle and most of us when investing for the first time we have already been warned about the risk we are undertaking.
Most people will enter just to make a quick profit, or dreaming about magical riches.
So, you bought inside a bubble. It can keep rising for a while, as all markets at times can be so irrational that the top may not be visible by anyone.
I will make it clear how the Cryptocurrency market works and at which point we should be buying.
Image from Hackernoon
This is an important chart, and 90% of investors have no idea how markets work during bull runs. The US stock market on average is just a line going up steadily for a hundred years. When zooming in there are these phases that are similar, or very close, for macro and microeconomic charts.
There is a big reason these charts are created and pushed into parabolic rise. It is cheap fiat money. The less the interest rate the FED or the ECB lends, the more money suddenly pours into various assets no matter their utility. This creates bubbles that eventually pop.
Especially for crypto where there is almost no regulation at all, the rules of the jungle apply.
Buying the top of a Bubble!
Bitcoin the Bubble, Image from: Bitcoinist
In crypto, the rules are just supply and demand. Other variables are there to increase or decrease these two. While there is almost no government interference, no corporations with balance sheets, and traditional banking is almost inapplicable in decentralized finance networks, there is one big factor that drives prices.
FOMO. This is how you get caught buying the top.
A good example of how you trapped yourself into buying the top:
You have your job, your family, and your income. You think you are doing better than your neighbors and find peace with that. You have self-esteem and you are the king of the hill.
Your close neighbor has his job and family and it was obvious he was barely making it. You thought of him being poor and feeling pity, but it also made you feel better about yourself.
You had a better income and you thought of being at a higher status.
You probably thought your voice mattered more than your neighbors did and you were more intelligent and clever.
Then, one day, you see your neighbors driving a new car, trucks arriving and delivering new high-tech equipment, you see them wearing better clothes and being extremely happy.
You start asking questions and learn they made so much money by this thing called Bitcoin. Your neighbors bought the dip in March 2020, when the whole world was entering a lockdown, and now they’ve made enough to pay off their mortgage, provide everything to their kids and live a better life.
Their financial status is now better than yours. They are rich. They’ve managed to 20x their $30,000 investment and they are now in a better financial position than you.
Your sanity falls apart. “How is this possible”, you ask yourself. “Why didn’t I invest in Bitcoin myself? I knew about Bitcoin before those guys did and missed this chance”. “I have to get in too”.
This is an example of FOMO. We see those that succeed and are close to us and we are trying to mimic them. FOMO is part of the “get rich quick scam”. It requires you to invest as fast as possible, as much money you have, without any research and any consultation.
You just got trapped by FOMO and bought the top of this bubble.
*Crypto “experts” replace the word “bubble” with “market cycle” as it is a more appropriate definition that doesn’t ignite negativity!
Technical Analysis is Important
Image taken from: Unsplash
While I dismiss almost every YouTuber trader I still watch a couple of them, for often they will provide intelligence that will be important. These guys have to create content almost on daily basis and it is not something easy. Most vids will contain nothing of value and the predictions may be very wrong.
I am following these two because they have shown commitment and a better understanding of the markets for many years:
I may disagree with many details and some of their charting, however, I completely agree with the core of their content and find value in watching their videos.
I distinctly remember my frustration in 2018 and how I was mistakenly shorting BTC at 4k. Alessio was quick to reply to my comment on one of his YouTube clips, that he wasn’t going to advise anyone to open a short after an 80% drop for BTC. A piece of golden advice as it was proven to be the bottom for BTC and recovery followed.
These two traders are explaining everything and are not holding back any information.
I remember Chris Dunn in November 2017 explaining exactly how the price of BTC will perform by moving parabolically and then reaching the point of no return and crash.
Of course, nobody can find the exact top or bottom, as fortune-telling is another industry that doesn’t work with TA. We find entry and exit points for our trades and follow trends and our analysis.
Disclaimer: I don’t know if these traders also offer any kind of “trading courses”. If so, these are not recommended by me. The material I found from their video clips was solid enough. I’m always against spending money for trading courses by anyone on YouTube or social media.
Source of Image: Unsplash
Trading is about managing to control and restrain emotions especially in an extremely volatile environment with major price swings.
Investing needs a similar approach, research, and something that 99% of investors are missing which is timing. You time your investment early and define the risk. While many will tell you not to invest too much in Crypto, there will be those pushing you into selling your assets and putting all your funds in it. The worst mistake is to enter late and risk too much.
Another mistake is selling everything before the market fully develops. Exiting too early means you lose a lot of expected value.
In case your sources are Reddit and Twitter and you come late to the party then you will most probably be the last one to buy, right at the exact top.
Volumes are always increased at the top and bottom. A market crash is difficult to predict, however, there will be signs in the charts before the negative news appears on mainstream media. Insiders already know the news and sell before anyone else.
Markets don’t go gently and according to our whims. The Crypto market is a game for some, but it is also rapidly expanding and has shown its potential.
Managing to curb our enthusiasm and make reasonable trades requires a lot of studying. A bear market is looming, however, there is still a chance to recover and within two months the market can be at a new all-time high.
We try to become “smart money” and invest before the hype and the FOMO. We buy the rumor and sell the news and we profit most by not immediately selling all our investment, without prices to fully develop.
We buy in steps (dollar cost average) during the bear market, and we sell in steps too. If we sell everything early, we lose profit and a huge chance this market offers.
Lead Image is a free download from Unsplash
This article was originaly posted on my medium account. Link
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