What To Do If You've 'Bought The Top'?
The past few months of 2021 have been pretty hectic for the crypto market—particularly for Bitcoin. May saw Bitcoin tumble below $40,000, rise back up to seeming stability, only to fall once more. It currently stands at roughly $39,000 with occasional blips and waves, but the question still holds: is Bitcoin in a bear market, has the price levelled or are the dips just blips?
It turns out, even the experts are stumped. Analysts are divided on the future of Bitcoin. Some say Bitcoin's going to shoot back up. Others are putting all bets on Bitcoin's competitor, Etherium.
Regardless of the outcome, the fact remains that the top cryptocurrency is in a bear market right now. If you're an interested or affected investor, here are some viable options you can do with your assets.
What Does it Mean to ‘Buy the Top’
In investment terms, a ‘top’ refers to the peak price of a product or security during a trading period. This is the highest it goes before it begins a downward trend.
Investors will typically want to sell their assets when they reach their top in order to maximize profits. On the opposite end of the spectrum, investors usually opt to purchase stocks when they're at their lowest price, or close to the bottom.
Again; all to maximize profits.
To "buy the top" basically means to purchase the asset at its peak price. This is rarely done by investors as it leaves little to no potential for profit. Indeed, a much more common practice is to "buy the dips," or purchase the stock after it has dropped in price. The term "dips" here refers to a short-term drop in the stock price, after which it commonly bounces back up to a higher value (marking an opportune time to sell).
What is a Bear Market?
A "bear market" refers to a market currently experiencing substantial sustained declines, during which prices continuously drop, shareholders' confidence is quite low, and supply continues to overpower demand. When investors believe that the market will continue on in this state for an extended period of time, they deem the market "bearish."
A bear market can be quite difficult to trade in—especially if you're a new or inexperienced trader.
What to do in a Bear Market
When stock value begins dropping and "momentary dips" turn into prolonged price plummets, emotions can run high. Investors are often paralyzed with two main options:
1. Sell now and cut their losses
2. Hold their current investments and wait for prices to rise again
There are a lot of factors to consider when choosing either option. If you've bought the top (or even near the top), there's no use beating yourself up over it. It's now about damage control. Limiting your losses. This is where a bit of market analysis and experience can be helpful.
Option 1: HODL
HODL stands for "hold on for dear life," and it's a pretty common practice. It's when investors hold on to their shares no matter what and wait for prices to rise again. Admittedly, it's one of the most effective BitCoin trading strategies, has proven – time and again – to be the safest and most profitable solution. If you're facing a bear market, it might be worth it to keep going.
However, do know that holding is pretty hard to do. You'll need steel will and commitment to stand through two or more years of a bear market.
Option 2: Buy Back Lower
Buying back lower can be tricky, but if you time it right, it could pay substantial dividends when the bear market is over.
For you to do this, you need to be absolutely sure you buy while the prices are dropping or are, potentially, at their lowest. Say BitCoin goes for $40,000, but it's dropping. You decide to wait until it's at $30,000. When it hits $30,000, you're advised that it's going to hit an all-time low at $15,000. So do you wait for it to go below $30,000, or do you buy now?
Because there's always the risk that BitCoin will climb back up to $40,000 within just a few hours. The market is constantly moving, and what seems like momentary glitches could actually be the prices reversing. Before you know it, BitCoin's back to $40,000 (or higher) and you've missed your opportunity to make a sizeable profit.
Option 3: Wait for Prices to Stabilise and Watch for Momentum Upswing
If you're willing to hold on to your product but not as intensely as one would when one HODLs, you can always choose to wait until prices stabilize and sell during an upswing. Don't fight the fall, don't try to guess where the bottom will be and don't wait for the product's new top, either. Watch the prices closely and sell the moment the price rises, even if it's only momentarily.
This is what "swing traders" do. They enter the market during a momentum upswing and leave the moment it loses steam. Unlike "trend traders," they don't look for patterns or trends. They simply trade when the asset is on the up. And because prices tend to swing up and down regardless of their trend, swing trading is actually a short-term strategy that suits plenty of investors.
All in all, it's important to note that it's notoriously difficult to predict the end of a bear market—especially since the rebound or upswing process can be influenced by so many external factors. The best thing you can do is rely on your experience and consult experts with regard to the best option for you.
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