With cryptocurrency prices falling rapidly since late November and bitcoin sliding below $20,000 for the first time in 18 months, the crypto market is undergoing a contraction phase, better known as ‘crypto winter.’ During this time of volatility, where everyone remains clueless and chaos takes over the market, a bold player will always find an opportunity even in an uncertain market, and that is what crypto trading is all about.
Is it a good idea to trade Crypto during a market crash?
The answer to this question depends on how far you are going to get involved in studying this market and the reasons behind the crash. Some opinion leaders in the market would say there are always opportunities in the financial markets despite the geopolitical and economic conditions, that’s what history tells. However, to deal with this, your success in crypto trading completely depends on your tactics and how clever you are. A well-planned trading strategy and a deep understanding of the crypto markets can make a difference.
Moreover, again the history tells us that this isn’t the first time the cryptocurrency market is experiencing a crypto crash or a crypto winter. It did happen before and the last crypto winter occurred between January 2018 and December 2020. Eventually, the term first appeared in 2018 after Bitcoin, Ethereum, and Litecoin (LTC) lost more than half of their market capitalization. Crypto winter appears to be similar to a traditional bear market, and the results are might not too dissimilar from bear markets in other asset classes. Apparently, that’s why it might be something you need to consider about crypto trading.
Bitcoin Price Chart:
For us to understand, let me first share a quick history of Bitcoin:
- The Bitcoin price has historically been one of the most volatile among asset classes. Bitcoin’s first significant price increase occurred in 2010 when its value jumped from just a fraction of a penny to $0.09. Following the COIVD-19 pandemic in 2020, Bitcoin’s price spiked once again. In January 2020, Bitcoin was valued at $6,965.72, and by Nov. 23, it was worth $19,157.16. Its price reached just under $29,000 in December, up 416% from the start of the year.
- As we can see, the price of Bitcoin reached an all-time high of $68,789 on Nov. 10, 2021, before falling back to $64,995. With uncertainty about inflation and the emergence of a new variant of COVID-19, Omicron, Bitcoin fell to $46,164 in mid-December 2021. The Bitcoin price fell below $30,000 for the first time since July 2021 on May 20, 2022, after reaching as high as $47,445 by the end of March. As of June 13, Bitcoin plunged below $20,000 for the first time since December 2020, bringing crypto prices to a record low.
As you can see, this clearly illustrates how cryptocurrency price volatility can change over time and how opportunity hunters can at some moment benefit from the price fluctuations. In case you are also curious about the possibility of trading in cryptocurrencies but are hesitant to risk losing your money in the crypto winter, I have been searching for information that might help in understanding the context of this market crash and what could be the advantage and disadvantage for crypto trading. Firstly, to succeed in the crypto space, you would need to develop some solid knowledge and understanding.
Here’s the Ethereum Price Chart for you to observe:
What is Crypto Winter? And What is going with market? Simply put, the phrase "crypto winter" likely came from the hit HBO series, "Game of Thrones." In the show, Starks' motto was "Winter Is Coming." This was considered a warning of war to come. In the same way, the crypto market may be settling into an extended period of trouble. Taking the phrase literally, crypto winter means prolonged periods of low prices.
What are the Advantages & Disadvantages of Trading Crypto During This Crash
While several members of the crypto community have expressed concerns over the possibility of a crypto winter in light of the recent cryptocurrency crash. Some may believe that the days of ‘Lambos’ and ‘get-rich-quick schemes’ are over in the crypto world. However, I remain optimistic about the possibility of gaining a reasonable profit even in uncertain cryptocurrency markets, but I don’t believe there is a huge gain in the short term. So, manage your expectations properly and check these advantages and disadvantages before you jump in:
Advantages of Crypto Trading during uncertainty times:
- No one is certain about this crash: Investing in crypto now or buying a dip while the market is in a downtrend gives you no assurance of profits and can result in a significant loss as well as lengthen the wait for the price to recover. However, in contrast, it is good to consider crypto trading and what it offers. There are good chances here in this market as you are trading both from upward as well as downward price movements with the ability to go long and short.
- You can start with less risk: Making an investment in crypto may require a tremendous amount of funds since cryptos such as Bitcoin and Ethereum are very expensive to purchase in large quantities. However, leveraged crypto trading enables you to invest a small amount and turn that into good profits quickly. Benefiting from pending orders, Take Profit and Stop-Loss can drastically give you more control over your capital.
- Provides easy access to the system: Liquidity is the defining characteristic of cryptocurrency. This refers to the ease with which cryptocurrency can be converted into cash without affecting the market price. Liquidity enables better pricing, faster transaction times, and more accurate technical analysis. With many reputed trading platforms in action, now you can buy and sell assets more rapidly while eliminating time-consuming transactional processes.
- Uncertainty exposes you to more details: Unlike the forex and stock markets, which operate 24/5, the crypto market usually operates 24/7 since it is not governed by a central authority. So it can be a great opportunity if you’re a newcomer or a part-time trader with a full-time job to trade cryptocurrency in your spare time. Learning to trade in the volatile market can teach you a lot about the functionality of the market and thereby enhance your trading knowledge.
- Crypto trading is easy to start: For investments, cryptocurrencies can only be purchased using an exchange, which requires an exchange account and digital wallet storage. It can be a time-consuming and complicated process. Crypto trading, however, allows you to create a trading account in less than five minutes with instant online verification.
Disadvantages of Crypto Trading during the crash:
- Highly volatile: It is important to note that crypto trading involves a high level of volatility, which may result in a loss of funds. Consumer demand determines the price of cryptocurrencies, so if it falls, the value will also decrease. You may sometimes lose all your capital for no apparent reason.
- It is too risky: If you are trading crypto without a well-thought-out working strategy, all you will gain is a loss of your deposit. It is very disappointing to lose even a small amount of start-up capital because of a lack of preparation.
- The trend is not really your friend here: Cryptocurrencies are still too new to provide sufficient information about key support and resistance levels. Compared to stocks, currencies, and commodities that provide historical price levels, even known cryptocurrencies like Bitcoin have a short history of track record.
There are usually a lot of risks, costs, losses, and even uncertainty associated with crypto trading. If you want to achieve success, you need to choose the right strategy, stick with it, and be open to changes as you trade. Yes, the market is bearish currently and may remain so for some time. However, it is important to remember that sentiment has its ups and downs, and the market will rise again for sure.
5 Ways to Manage Your Crypto Trading During the Market Fall
The cryptocurrency market is highly volatile and prone to ups and downs. And this is the reason why many day traders formulate both buying and selling strategies in an effort to maximize their profit potential.
The following profit-taking strategies can help crypto traders not only overcome their emotions through proper planning but also gain the confidence they need to make money, regardless of market conditions. However, to attain success, it is important to keep in mind that every strategy is highly individualized, so it must be flexible and market-driven.
1. Do not engage in Emotional Trading.
Emotions are often the cause of many bad trades. Bitcoin is more attractive to traders if it is $65,000 in November 2021 than if it is $35,000 in January 2022. It is common for crypto traders to see red on their portfolios today, which makes them wonder if they can even recover their money. Hopefully, if they stick around for quite a while they can definitely recover the money they spent.
A loss can be led to impulse decisions that have nothing to do with your strategy. Despite feeling as if everything is going wrong, it is crucial to remain calm. As a beginner, it can be a bit overwhelming, which can make it very tempting to react. However, developing sound trading psychology contributes significantly to the decision-making process of any trader.
It is common for short-term traders seeking fast returns to have a higher risk tolerance than long-term traders. To succeed in this, you need to make use of technical analysis since it plays an important role in managing risk and choosing the best entry and exit strategy relevant to you. Having a set entry and exit strategy reduces the risk of making irrational decisions due to emotions and prevents second-guessing. It is, therefore, an important component of your trading plan.
2. Bearish markets create the rich.
Take a look at today’s market from the perspective of the top investors. It will be a delight for him/her to see the crypto price decline. How does that work? It is because they are experienced in taking profits both up and down markets. Since most traders are unlikely to time the exact top or bottom, laddering in and out can help secure gains. Even if traders leave some money on the table, they won’t lose their capital since profits are taken.
Moreover, be prepared to sell on the way up and on the way down, and always remember the adage coined by Bernard Baruch, one of America’s wealthiest men for half a century: “I made my money selling too soon.” Yes, sometimes you should sell some assets rather than hold on to them when the market begins to decline.
3. Take out the initial investment first.
Some crypto traders may make a good decision to withdraw their initial investment immediately after the value of the crypto asset skyrocket despite the cry of crypto investors to HODL. It’s generally a positive step, but be aware that it may unleash the “house money” effect.
The house money effect describes how traders will take on greater risk when reinvesting profit earned through trading than they would in savings or wages. It is common for people to separate trading income from other income, which can cause confusion in their mental accounting.
By taking your initial investment, you can save yourself the risk of over-risking. Once a trade reaches an initial price, traders should cash out half of its value. This helps to keep your greed under control, even after you take out an initial investment, you should set price targets to manage risk.
4. Importance of Take-Profit Orders
The decision to take profits is ultimately a personal one based on a trader’s personal risk profile, strategy, and goals. Here are some examples:
Price targets: Traders can sell a percentage when they double their initial investment, a second percentage when they triple, and so forth. It’s not necessary to set these objectives in stone, but rather to give or take a zone and then fulfil them. Also, each asset a trader invests in may have its own set of guidelines.
By incorporating technical analysis, many investors enhance their profit-taking strategies. Another useful tool is the Average True Range (ATR) indicator, which gauges the volatility of the instrument being traded.
5. Diversify your trading portfolio
Staying on the profitable side with cryptocurrency trading requires portfolio diversification. It is common for successful crypto traders to mix higher-risk cryptos with blue chips such as Ethereum, Bitcoin, and other altcoins such as Binance Coin, Ripple, Terra, and so on. When an asset starts to outperform, the investor rebalances by taking profits to avoid overexposure to riskier positions. Some may even retain a small amount of capital if the particular coin continues to rise.
While investing in crypto can be a volatile journey, by diversifying your portfolio, you can create an asset allocation plan that reflects your level of comfort with risk and the potential gains you expect. Cryptocurrency investors can also consider stable coins, such as Tether, which are pegged to a fiat currency like the dollar, so they don’t fluctuate as much as coins, altcoins, and tokens.
What is the right time to trade crypto during the day & week?
A trader looking to execute large buy and sell orders must identify times when liquidity is at its peak (the number of counterparties available for an exit or entry at any given time) and trading volume is at its peak. When it comes to novice traders or those looking to place smaller trades, liquidity is less of an issue.
Timing the execution of crypto trading can be a very challenging process, but generally, there are certain trends that seem to be prevalent in the market. Here is what the data says about when to trade crypto.
Best time of the day to trade cryptocurrency:
Crypto trading takes place all day long (no matter where you live), so timing your trades to a certain time of day may not be very wise. However, if you examine a few months’ worths of data, there are a few very general patterns that emerge.
When bitcoin prices were on the rise in 2017, they were attributed to the sunrise in Japan. However, Wall Street is now more intimately involved, so most of the action is happening in the west. A significant amount of recent data confirms that crypto trading is largely synchronized with US market hours, indicating that crypto investment is shifting westward. The early Asian sessions are so thin these days that those traders seem to be taking advantage of them.
U.S. stock market hours are when bitcoin spot volume tends to peak, particularly at the opening bell. The Coin Metrics chart shared with CoinDesk suggests that the correlation with U.S. trading hours has been evolving since the first quarter of 2022. In light of the data, it is likely to be beneficial to trade according to the US time zone.
Best time of the week to trade cryptocurrency:
Using the same data used to determine the best day of the week to buy crypto, Thursday appears to be the best day. There were dips on that day in six of the eight weeks. The best time to buy is Thursday morning if that trend continues (which is certainly not guaranteed). Mondays (five of eight saw a dip), Fridays and Saturdays (four of eight) are the second-and third-best days to buy.
Avoid trading on the weekends:
The U.S. equity market may be asleep on weekends, but the cryptocurrency market never sleeps. Due to its 24/7 availability, it is possible to trade every day of the week.
Crypto trader Cantering Clark, a pseudonymous market analyst, says the smart money is less active on the weekends. He added that a lot of liquidity providers (also known as market makers) and algorithmic trading bots are active during weekends. Thus, trading on the weekends is not advisable.
Additionally, legacy markets like forex are known for having thin weekends. Having this knowledge, banks would attempt to force movements on the market by pushing it around. Likewise, in crypto, the idea was for a long time that any weekend activity was ‘wrong’ and should be avoided. The expectation among traders is that the market will go down over the week if bitcoin rises on a weekend. But, as most experts say, don’t rely on the weekend.
What is Crypto Trading?
Cryptocurrency trading is the act of predicting future price movements of cryptocurrencies or buying and selling different virtual coins and exchanging them for one another in hopes of making a profit. If you anticipate that the cryptocurrency will rise in value, you can go long (‘buy) or go short (‘sell’) in the event you believe the price will fall.
In spite of the fact that cryptocurrencies entered the world of investment several years ago, crypto trading gained momentum in the year 2017 among new and experienced investors alike, making it now a prominent financial destination that continues to gain popularity in light of the current market conditions, commonly known as the ‘crypto winter’.
Cryptocurrency Investing Vs. Cryptocurrency Trading
Despite the fact that both crypto trading and crypto investing are intended to increase your investment value, the main differences are the ways in which they do so. As with conventional financial instruments like Forex and Stocks, it is the same with Cryptocurrencies. However, each requires a different mindset and set of tactics to succeed.
Investing in Cryptocurrency
Cryptocurrency investing involves the purchase and holding of cryptocurrencies and assets hoping that their value will increase over time. The goal is to establish a long-term position in digital assets based on fundamentals and long-term trends.
Attempt to create a position with a lower price than what you will eventually sell at if you plan to sell. It’s best to buy a crypto coin when its price slides. Some selling can be done to help manage your position, (you may hedge, for instance, trade some, sell some high and buy some low, or hold a short position against a larger long position).
It is important to HODL through the downturns, as well as the upturns (since the goal is to remain invested for the long haul; therefore, you gauge upcoming price fluctuations, even when they are big).
HODL, which stands for "hold on for dear life," has become a mantra among crypto enthusiasts who invest in cryptocurrencies for the long term. This approach suggests that novice traders are likely to fail if they try to time the market, so they should hold onto their coins through the market's various fluctuations if they wish to make a profit.
Investing in crypto successfully starts with building a diversified portfolio that consists of various types of assets. Different types of assets can be included in the portfolio, for example, Defi projects, Bitcoin, Metaverse coins, and NFT tokens. Such a strategy can lead to the creation of a sophisticated portfolio. You must put the asset first and short-term price trends are a distant second if you want to succeed in crypto investing. The goal is to get more coins by various means.
Crypto trading is all about speculating on the price movements of crypto, just like financial securities trading. Day trading, swing trading, scalping, and momentum trading are some ways to achieve this.
The key to success is to focus on short-term profits based on technical analysis and short-term trends. Short-term capital gains are derived by taking advantage of low prices and selling them at high prices. The risk of taking losses and setting stops is acceptable to you (you tend to buy high and sell low when trends turn against you).
Following a trend also requires buying high and then getting out if necessary. What matters is the potential for percentage gains, not the current price. Your attention should be on the short-term setup and the possibilities for price increases and decreases. Your goal is profit, capital preservation, and capital growth.
Regardless of your interest in crypto, short-term price trends are what matter, and caring about crypto too much is toxic for a crypto trader… since coins can and will be lost frequently. In the short term, price trends are more important than the asset’s future and its fundamentals. The goal is to get as many dollars as possible.
The current cryptocurrency markets are traders’ markets!
Therefore, investing in the crypto market requires building positions carefully over time in order to avoid price fluctuations. Crypto investing and trading can be easily understood in the sense that investing considers fundamentals and long-term trends, while trading considers technical and short-term price trends.
It’s no secret that crypto investing and crypto trading takes patience and emotional control, and both can be challenging, but they can also be rewarding if you master them. Both investing and trading can be done simultaneously, but they should not be confused.
Different types of Crypto Trading:
Crypto trading has now become an obsession for everyone owing to the fact that both amateurs and professionals are interested in portfolio diversification and using Cryptocurrency Contracts for Difference (CFDs) to generate returns without actually owning any digital coin or assets. The following are the two different ways you can profit from crypto trading.
- Trading Crypto CFDs — Crypto CFDs are similar to traditional CFDs, except they trade cryptocurrencies instead of currency pairs. Trading crypto CFDs can be appealing to traders who want to profit from price movement without dealing with the technical process of buying and storing cryptocurrencies. You need not worry about their legality when you buy and sell crypto CFDs since they adhere to all financial regulations.
- Trading Crypto Assets — The concept of trading crypto assets is relatively simple. Cryptocurrency assets are digital coins that can be purchased on cryptocurrency exchanges and stored in crypto wallets. A few of the most well-known crypto assets include Bitcoin, Litecoin, and Ethereum. It is preferable to trade Crypto Assets only if you are familiar with their technicalities, safety, and legality. It can be challenging for first-time cryptocurrency buyers to buy and store crypto assets securely.
The decision to trade crypto CFDs or to invest in crypto assets is entirely up to you. You can choose whichever one works best for you based on your risk tolerance level, trading strategy, cryptocurrency expertise, and financial goals. In case you’re having trouble choosing which one to trade, here’s a detailed comparison of Crypto CFDs and Crypto Assets for you to make an informed decision.
Is Crypto trading a dangerous game?
That’s a big no! Whenever you gamble, you are putting your money at risk. There are both chances that you might become wealthy or become a beggar by the end of the game. When it comes to gambling, you don’t need to follow any particular strategy. The outcome depends entirely on luck.
While cryptocurrency trading also carries the risk of losing money in the process, properly analyzing the market and developing a smart strategy can also make you become a millionaire. It is imperative that you gather as much information about the crypto market as possible in order to be successful at crypto trading. You need to analyze the market based on those pieces of information and create a strategy based on them.
You can mitigate the risk associated with cryptocurrencies if you play smarter. The problem is that if all you do is invest your money because your boss has also invested, you are actually gambling with it. You decide whether you trade crypto coins following the right guide or whether you just go with the trending buzz about Crypto trading.
So, What is the Future of Cryptocurrency?
According to data from the last 12 years, Bitcoin fluctuates between uptrends and downtrends, but on a macro scale, its value is always increasing. Over time, Bitcoin’s price is bound to rise due to increasing adoption among institutions and retail investors. I anticipate that the market will become stronger over longer time periods (years, not months), given that the overall crypto market structurally follows Bitcoin. The prices we see today may therefore represent some of the best entry points into the market.
However, even with the best advice from an expert, you should only invest what you are prepared to lose and stick to more conventional investments for building wealth over the long term. It’s best to keep your investments small and focus more on crypto trading as it also gives you the possibility of generating income even in a down market.
In addition, instead of learning how to navigate a cryptocurrency exchange to trade your digital assets, you can add crypto to your portfolio by adding it to the brokerage with which you already have a retirement or other traditional investment account.
Trade Crypto with A Trusted Platform
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The spread and margin requirements for crypto trading with AximTrade are among the lowest comparing other trading platforms. Traders are also given access to a wide range of tools and trading instruments in order to execute their trades with an informed perspective. As a result, you will be able to generate impressive earnings and reduce the risks associated with the volatile nature of cryptocurrencies.
Disclaimer: The above information provided is for informational & educational purposes only. Crypto products and NFTs can be highly risky. There may be no regulatory recourse for any loss from such transactions. Trading can lead to losses, so please do so at your own risk.