Crypto Academy Week 12 - Homework Post for @fendit | Don’t Get Lost in the Fuzz

How do you feel after entering a trade, and within a short time the coin begins to decline in value? Well, if you’ve been in crypto for a while, that’s an experience that may sound so familiar. Whenever I find myself in that position, I know it’s time for me to consider my next move.

The crypto trading concept is that when you buy a token because you believe there’s going to be an increase in price, you may end up buying the asset from someone that believes there’s going to be a decline or correction in price. Yeah, that’s the yin and yang of trading.

1. My Reaction When I Buy BTC and it Dips

Before the Class

In the past, I used to be a very sentimental crypto trader. When I buy a token and I see that the price is falling, I go to telegram and discord groups and see what other traders are saying. I simply read their analysis and make my judgement based on what I read.

If I read that it was a simple correction, I would still be worried. That’s because I’ve seen minor corrections turn to major corrections.

What I Would do After the Class

I’ve learn over time to make my judgements on my research and analysis.

Examine My Portfolio

Since Bitcoin is not a pump and dump token. And I know it has a massive market cap, so a single force cannot simply manipulate the market price. In that case when I see the price dumping I would have to consider my exposure.

I know crypto trading is termed as high risk, and there’s a possibility for the price of tokens to move in both directions. I would want to consider if it’s a market cycle that caused the drop in the price of Bitcoin. If it’s simply a market circle, then I wouldn’t panic much. I know in every market cycle there tends to be fluctuations in price. The deviation in price can be determined with a simple technical analysis of price for different cycles.

If the drop would affect my entire portfolio drastically and I was unprepared for it, I would have factored in possible scenarios.

Buy the Dip (when Applicable)

The term “buy the dip” is probably one that is often told to newbies when they panic during a bear market. If I have sufficient liquidity, maybe some idle USDT lying around my wallet then I may consider buying more BTC to reduce my loss.

I’d also consider the reason for the dip. If the dip is because of a recent news publication, like that the recent news in United States. Some weeks ago, there were rumours that the President of the United States of America, Joe Biden, was considering increasing the capital gain tax on cryptocurrency assets. As a result, within hours the price of BTC tanked. And it took the other ALTs down with it.

When there was no development on that news, BTC began recovering in price. So I’d monitor the situation of things while buying the dip. Because it that case, it was a good time to buy more BTC.

Count My Loss

There are situations that I may just want to count my loss. For example, if the drop in price is caused by the ban of crypto in the United States. I would want to empty my bags of BTC. I still remember when China banned crypto ICOs and went further to ban BTC. The price of BTC tanked for years. So since I wouldn’t want to be locked in for like the next four years, I’d prefer to sell at a loss.

So whenever I see the world “crypto” and “ban” in the same sentence it gets me worried. Every single time.

2. Mistakes I have Made when Trading

Like they say, “you win some and then lose some.” My trading experience has not been a bed of roses. I’ve made good gains and I’ve had bad losses. For the purpose of this article, I’d be taking about a recent experience I had.

It started on the 6th of April when I bought $100 worth of $DATA token. The project was quite captivating and a friend said he had received a signal to buy the token. I saw it involved IoT, Web 3.0 and other amazing technologies, so it got my attention.

It was only after some days, that I began having second thoughts when my token began losing its value. I was so worried. I looked up the project’s community, I couldn’t find any reason for the decline. The community members had only positive things to say. And they said it would make a parabolic move on the charts soon.

12 days later, I saw the charts still had only red candlesticks. So, I decided to buy the dip. I added $50 to my intitial $100 used to buy the token.

It was few days ago, on the 3rd of May, that I eventually sold the token at a loss. It kept me worried all the time. So I had to sell to have peace of mind.

One reason for my mistakes was due to the fear of missing out. I didn’t want to miss out from such a project that had an amazing idea. But in actuality, it takes more than an idea to be successful.

My experience has taught me some lessons:

Don’t Follow the Crowd

One of the reasons I bought $DATA was because my friend said that he had bought it, so I didn’t want to miss out. Well, I shouldn’t have done that it a hurry. I have to take my time and study projects critically before I invest. Unless, I’m simply just speculating.

Know When to Count my Loss

I’m glad I sold the token when I did. Even though I sold at a loss, but I have peace of mind now. I loss about $30 to that in that trade because I did not prepare my mind for the reverse scenario. I only entered the trade with the mindset that I’d make profits.

3. Browsing through Twitter and I See This

If I’m browsing through Twitter and I see such a tweet from a popular figure it would be a tempting situation.

Before, the class I would hastily go and buy the token. Out of fear that I would miss out from profits. But in reality, going to buy the coin after such a price, I would have end up overpaying for the coin. That is because when many people are trying to buy a coin at a particular time, the demand becomes grater than the supply and it leads to an increase in price.

Avoid Panicking

I would avoid panicking. That is because when I buy the coin due to that tweet, I could end up with losses. The increase in price as a result of the tweet would not be sustainable. Instead of panic buying, I would prefer to sit and analyze other crypto markets that are not being speculated by influential people.

When I look long-term, then I would understand that those movements would last for only a short while.

And also, I I’ve earlier mentioned, determining when to buy the dip or exit the trade is important.

Conclusion

I have benefited so much from the homework task given by professor @fendit. Here, I’ve been able to consider my trading methods and the reason not to follow the crowd. I would not buy any digital assets simply because I was told to buy. Then, overtrading is another thing I would want to avoid.

I’ve also learnt to think deeply before making a decision, so that I would not make one that would end up hurting g my portfolio. Once again, I want to thank the professor for bringing up this important topic.

Images: The article contains screenshots that were taken for the purpose of the assignment.