A bear market can be scary and brutal for investors who have not experienced such dreaded cycles. If you lack the knowledge of a crypto bear market, your emotions can sway you into making trading mistakes.
Compared to traditional stock, the swings in crypto can be more volatile. In a bear market, it is not uncommon for some altcoins to lose more than 90% of their value from their all-time highs. So, a bear market can be an emotional roller coaster.
In this article, we pinpoint the most common trading mistakes that investors make during a crypto bear market.
Panicking during a crypto bear market leads to feelings of anxiety and fear, making you lose control over your emotions. This causes you to make impulsive decisions. More often than not, these panic decisions lack logic and common sense.
Of course, it is not easy to watch your entire portfolio plunge. However, in such market conditions, you should make decisions based on objective merits s. For instance, Ethereum is considered the second largest cryptocurrency with real-world use cases. Similarly, Bitcoin is considered a store of value, just like gold. These have only appreciated in value if we look at their larger history.
So, avoid panic selling and do not let aggressive selloffs worry you because these are common in a bear market. The only time you should be worried is if the narrative behind cryptocurrency shifts 180 degrees and it stops fulfilling its fundamental role. Perhaps, using Bitcoin 360 ai could keep you in a calm state of mind.
Getting Attached With Your Bags
This is the opposite extreme of panic selling. Sometimes, it is important to recognize a bad investment and cut your losses. Many investors get too attached to their bags. Hence they choose not to sell despite seeing a complete shift in the narrative and the market’s interest.
This happened to many investors in the year 2017-2018 during the ICO boom. Investors made great returns but ended up losing everything after the crash that followed. Some micro-cap coins may not even recover once a bull market returns.
If you have not experienced a crypto bear market before, then you particularly need to be mindful about not getting attached to your portfolio.
Timing the Bottom
They say that the bear market is the perfect time for a long-term investment. However, another common mistake potential investors make is trying to time the bottom.
It’s an old tale – “I’ll buy Ethereum when it goes lower,” and this typically results in two scenarios:
- Ethereum plunges in value, but the investors do not take the opportunity to buy because they believe it is going to go even lower.
- The bottom forms, and Ethereum stops going lower, but the investors keep waiting for another leg down.
Instead of timing the bottom, you should consider dollar cost averaging your position. This will bring your average entry price closer to the bottom while minimizing the risks of losing the opportunity to invest.
Forgetting About Your Health
Watching your existing portfolio go down can be emotionally and mentally draining. It will eventually take a toll on your mental and physical health. Remember, no amount of money or cryptocurrency is worth putting your health on the line.
Take care of your sleep, diet, and physical health as well. Perhaps, the most stress-free strategy you can form is to invest for the long term so that you do not have to worry about any short-term dips. However, this requires you to have a strong conviction in the coin that you are investing in.
That being said, investing in larger micro-cap coins during a bear market, such as Bitcoin and Ethereum (not financial advice), is generally safer. Your goal should be to think about the long-term.
Overtrading, or impulsive trading, is not all too uncommon either. After taking a big hit in their portfolio, investors often try to scalp any short-term rallies during the bear market. However, the market volatility does not really depend on your emotions.
This form of trading is also a result of mishandled emotions. So, remember that there is no room for your emotions when it comes to trading cryptocurrencies. The bear market can be brutal, and bull traps are common. Do not let the fear of missing out (FOMO) get the best of you!
As you may have noticed, managing your emotions is the key to surviving a crypto bear market and avoiding taking any further losses. However, mastering your emotions can be difficult.
Even the most experienced traders sometimes give in to their emotions, especially when they are desperate to recover their portfolio.
So, make sure you invest with a long-term vision and make stronger conviction plays in larger micro-cap coins that are more likely to survive. Lastly, as always said, do not invest more than you can afford to lose!