Forbes India 15th Anniversary Special

How to trade in a downtrend?

Ups and downs are part of any financial or economic cycle, not least in the cryptosphere. Staying invested in the long run often pays off.

Published: Aug 31, 2022 02:57:29 PM IST
Updated: Oct 27, 2022 11:16:06 AM IST

How to trade in a downtrend?After Bitcoin and other crypto assets reached dizzying heights last year, the crypto market has cooled down. The bears have taken over the market which is currently very tepid. Irrespective of the asset class, investors around the world, during these times, prefer to “wait and watch”.

What should the crypto investor do to make the most out of a bearish market?

Firstly, beware of the universal Fear of Missing Out (FOMO). It would be a bad idea that an investment decision is based solely because friends and cousins are “buying the dip”. Hard-earned money needs to find a safe haven which is not based on instinct but on sound financial planning.

Similarly, one must be aware of FUD or fear, uncertainty and doubt. This generally refers to a negative market sentiment, caused by some rumour or an unfavourable news article. Often a simple tweet from a crypto guru or a billionaire entrepreneur can cause the prices of any crypto asset to rise or fall, in the short term.

Set clear goals, diversify, and only trade within your means: Much like a credit card, where fiscal prudence is necessary, in the world of crypto assets, too, it pays to trade within one’s means. The oft-quoted advice for newcomers in the market is “Don’t invest more than you can afford to lose”.

Crypto markets are volatile. It helps to pre-define entry and exit points of investments. A few investors may even choose to be in it for the long run by investing small sums of money each month.

For instance, ZebPay, among India’s most trusted crypto exchanges offers Systematic Investment Plans for purchasing crypto assets much on the lines of what is done in mutual funds. The strategy, called “rupee-cost averaging” ensures that even when prices fall, more units of the assets are purchased. The strategy is an effective cushion against price fluctuations which the crypto market is often prone to. Moreover, despite the volatility until last year, Bitcoin had given the highest returns across all asset classes.

Another important thing to remember is to be ready to ride out the dip and also to take profits from time to time. You can always convert some of your volatile crypto holdings for more stable assets. Similarly, even when the crypto markets are falling, there are opportunities if you know where to look. Keen investors often get their assets at a discount.

The cryptosphere has had a longish winter. It has been hard on all global investors. However, instead of looking at it as a missed opportunity, it can be construed as a way to consolidate one’s position in the market.

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