Weathering the Storm: How to Capitalize on a Crypto Market Crash
One day, all your crypto-investments are in the green and the very next, they're all in the red. If you're new to the crypto game, you may be having a heart attack. But for someone in the market for even just a month, you have probably experienced this cycle a couple times by now. This article aims to provide some general tips on how to safeguard your positions and furthermore profit from said market fluctuations:
1. Pay attention to the total market cap.
The total market cap can often a signal a market crash when it hits an all-time high (ATH). The last crash occured five days ago around a cap of $115B. Today's crash happened ~$116B. Furthermore, take note of how long it took for the market to rebound after the last crash as well as the daily market volume. We bounced back from the last crash in 5 days, so about 4 days from now you should think seriously about a pending crash. Consider selling some of your positions if there are other indicators of a possible correction. Even a gain of 10% is still 10%...and that's more than 0%.
2. Is everything in the green?
When 95 of the top 100 cryptos are in the green, be on guard. We are due for a market correction.
3. Be in-the-know.
Many traders know nothing about the coins that they are trading, apart from a technical analysis of the charts. You can make gains playing the numbers in this fashion, but to truly maximise your potential you need to be plugged into the cryptoverse. Maybe BTC rebounded today due to the positive moves its making in India? Maybe the upcoming Civic ICO, which accepts BTC, had a role to play? Or perhaps it was the realization of 80% SegWit2x support, alleviating many fears within the BTC community. To be a smart investor means to subscribe to your coins' Reddits, Slacks, Telegrams, Twitters and so forth. Expect a future post detailing my favorite outlets.
4. Check your mindset. Green = sell; red = buy.
When you're in the green, always consider taking a calculated sell position. The key word here is consider. If you plan to hold on to a certain coin in the long-term, of course do not sell it if you believe in it. But for a coin you have no attachment to outside of profit, ideal trading practice dictates that you are obligated to consider taking a sell position. Profit is profit and that's why you're here.
On the other hand, when cryptos are in the red, consider them "on sale". Be patient and buy at a calculated low.
5. Maintain liquidity.
Of course, the above cannot happen unless you maintain some liquidity. Therefore it is imperative that you sell prior to the crash so you are ready to strike when everything falls by 10%. At the least, you will make that dip back in profit when the market rebounds.
6. Hedge when Bitcoin is near-ATH.
The Bitcoin price cycle can be seen as fluctuating from the ATH to a crash, over and over again. One way to capitalize on this is to hedge your Bitcoin into a less volatile currency at highs and trade it back for BTC during a low. The obvious pair to do this with is Tether (USDT), which also offers the advantage of liquidity if you want to trade it for something other than BTC. Litecoin (LTC) has proven itself to be a great hedge as it is seen as a great alternative to BTC (and most recently, showing strong growth in light of the crash). Ripple (XRP) and Stellar Lumens (XLM) have also shown resilience to crashes. One of my personal favorite hedges (which I am accumulating for the long-term) is the sleeper-hit Lykke (LKK) - more on that in another post.
Always take note of cryptocurrencies that show such resilience and think of them as a tool in your trading arsenal.
With patience, restraint and discipline you can weather the storms the cryptocurrency market throws at you. Establish a gameplan that makes black-and-white sense and stick to it. These moves require confidence in yourself to pull off (otherwise, you may panic and chase or sell at a loss). More on confidence in a future post as well :)
I hope this helps if you feel lost - please comment with your further advice and experience as I would love to learn from you.
Great advice in this post. Red means buy, green means sell - so basic but amazing how many people have it backwards. I don't know much about Tether, but I've seen references to it a lot lately. Maybe it is a good choice for a more liquid and stable trading mate with BTC, I'll have to learn more about it!
Emotion often defies logic when it comes to trading (this is where confidence comes in). In regards to Tether USDT, it is a cryptocurrency pegged to the U.S. dollar. This means that 1 USDT = 1 USD at all times. In reality it's more like 1.03 USDT = 1 USD but you get the idea. What this allows is if BTC for example is at $4000 USD, you can trade it for $4000 USDT. The next week, BTC drops to $3200 USD. You now use your $4000 USDT to buy BTC at the lower price. The advantage here is your $4000 USDT doesn't go all over the place in value because it is a pegged currency. I'll go into more detail about the pros and cons of USDT and other hedges in a future post. Hope that helps :)
P.S. Check out my first post...it's my cat :D
Finally a post that breaks it down so regular non crypto people can begin to understand what is happening and what to be looking out for. Looking forward to more easy to understand tips as I ease into this world.
Steem was my first foray into crypto. This is a super helpful guide for someone new like me.
How do I trade my Steem for bitcoin?
Most likely you have been accumulating Steem Dollars and Steem Power, but you can convert it to STEEM the currency within SteemIt. From there, you can withdraw your STEEM from SteemIt to an exchange (there are many - kraken.com, poloniex.com) and trade it on the market for other cryptocurrencies. At the least, check out the exchanges to appreciate the breadth of the cryptoverse, and also look at www.coinmarketcap.com to see how many coins there are! Should you feel inclined to get into the market feel free to let me know and I can point you towards some great introductory posts and videos.
Thank you for this post! I'm also new to cryptocurrency and trading in general, so I greatly appreciate posts about the fundamentals of both. I'm looking forward to your future posts (and cocktails). By the way, what advice would you give regarding trading on multiple exchanges? For example, I currently trade on Kraken exclusively, but am looking to expand my portfolio with ZEC/CAD and LTC/CAD trading pairs, which Kraken currently does not offer. Should I wait for new pairs, purchase USD, or move assets to another exchange? What advice would you offer? Cheers!
Ideally you would withdraw a crypto from Kraken to another exchange to trade it for the crypto you want. There are very few cryptos that are paired to CAD, usually just BTC and ETH and Kraken has XRP. Note you will be charged a small withdrawal fee and depending on what you're withdrawing the transfer can take some time (as is the case for BTC and ETH these days).
LTC I think you can get on Kraken via BTC? So I would just do that. You can play the long game and buy BTC when it's dipping (say, today or tomorrow) and then buy LTC with that BTC when BTC is up and LTC is down. Right now I think BTC may bounce back a bit on Monday. LTC has been consolidating in a downtrend.
Don't wait for new pairs, there is no way to predict when that will happen.
Thanks for this! I'm super new to this world, and I find it confusing, lol!! This helps though :)
meep
I'm here to help!
I made $4 from my first trade with Ripple a couple of weeks ago. Since then my holdings are continuing to grow a dollar or 2 a day. Its modest growth but Im happy. Im learning.
Thanks for the advice. Followed.
Thank you, many more posts to come! Congrats on the $4 - that's still $4 you may not have had otherwise. When you look at your portfolio, you need to have a couple of coins you believe will still be around in 20 years - just accumulate these on the dips and don't look back. At the same time, I would recommend (if you are comfortable) allocating a segment of your portfolio to trading coins for a quick 5-10% here and there. Low risk, obvious trades. Watch for coins that are consolidating, check the recent news, check the sentiment on twitter and the like, buy in and cash out and move on. $4 well earned! Followed you back as well, love the feed.
This is really great advice. Thank you. I'm totaling $15 profit that started from a $50 stake over 2 weeks so far. Steem and Steem power is where most of my investment will sit in the long term I think. I truly believe is Steemit.
Meanwhile I am just getting started here. What are you in to? XRP, what else?
I wouldn't know. They are all the same to me at the moment. I bought and sold about 10 different cryptos over the last couple of weeks just to test the market and to work out Poloniex. Now my buy orders for Decred DCR came in cheap so I'm just waiting on my quite modestly high sell order to come through. I haven't checked for a couple of days. Wasn't looking good last time I checked.
I wouldn't sweat it, I believe DCR has worthwhile long-term potential. A lot of people who want to flip and make quick $$ will look for coins that are about to pop off and invest. On the other end, you have people who just slowly accumulate coins they believe in long-term. Me personally, I don't mind waiting a week or two to flip a profit. If you watch the market carefully, you will be able to identify these slower-moving coins as they consolidate (where they are not really moving up or down in price). Typically the longer they consolidate for, the higher the chance they will shoot up another 10-15%. Sometimes you will luck out and get a 400% return as seen with NXT and BitShares recently.
As well, I think we are due for a market correction within the next 3 days so it might be worthwhile to hold on to some liquid to spend in a bit if things take a big dip.
Thank you again.
When you say 'market correction' what do you mean exactly?
At times there will be a huge sell off where pretty much everything is in the red. It seems to occur when the total market cap peaks. You want to have $$ ready to go to buy cheap coins when this happens.
Or you try some nice airdrops. Here's one list: https://crypto-airdrops.de