High-volatility periods can be an excellent opportunity for investors to make profits, although they can also be risky.
The cryptocurrency market is filled with its share of similar opportunities that have proven to be highly lucrative for traders.
However, to fully capitalize on these opportunities, there are a few things you need to know beforehand.
Here are some tips that will help you stay profitable in the cryptocurrency market during high volatility.
Be aware of news and events
One thing all financial markets share in common is the effect that news, rumors, and propaganda have on the underlying assets – and the same is true for the crypto market.
But unlike the others, the crypto market never sleeps as it is 24/7, so multiple headlining stories can occur throughout any given day that can move the calls back and forth.
This makes it more important to stay up to date, or at least relatively up-to-date, on key events in this industry to best prepare yourself for possible upcoming moves in the market.
Keeping track of major announcements from governments, central banks, and other prominent figures can give you a better idea of when to enter or exit the market.
Set reasonable expectations
It can be easy for traders to let their imaginations wander while they ponder how much profits (and potentially life-changing) one trade can be.
Unfortunately, that type of thinking in volatile markets can be counterintuitive as it may cause you to stay vested in a trade longer than necessary.
The goal is to be as objective as possible and to keep both realistic potential outcomes (the upside and downside) of the trade in mind and not to become emotionally attached to how you want the trade to play out.
Take the time to analyze the market and different coins and set achievable goals corresponding to your risk tolerance, current financial situation, and most likely trade outcomes.
Implementing Diversification
Diversification has long been an investment strategy praised by professionals worldwide. Its power and effectiveness have a track record that spans centuries, if not longer. You can use diversification to your advantage in multiple ways to help you during volatile times.
Investing in multiple cryptos is a diversification method that allows you to spread your investments, which helps mitigate potential losses from just one coin’s fluctuations. In addition, choosing different trading styles, such as automated trading, can help during volatile times as it responds to market movements and processes data much more quickly than any human mind could.
One strategy (or tool) many traders also use as a way to diversify their strategy is an automated crypto trading bot. This has proven to be an effective method, especially during highly volatile market conditions, since it allows the trader to leverage the help of technology, making their underlying strategy more effective.
Have an exit plan
Having an exit plan before entering any type of investment is essential, not just a crypto trade.
It is like being lost without a map – having no sense of direction and being reactive instead of proactive.
This can also help you mitigate losses while maximizing returns, as you’re more likely to be able to cut losses early if the trade is not going according to your plans.
You would have set an exit target price for the winners, so once that’s met, there’s no question of “should I get out? So what if it keeps going up?” – a common, costly mistake for traders.
Stay disciplined
Most importantly, remain disciplined and do not let your emotions get the best of you.
It’s easy to get caught up in the excitement of a volatile market, but emotions are the last aspect we want to be present when trading.
By remaining calm and focused, you’ll be better equipped to make rational decisions that can lead to profits in the long run.
Recipe for Success
Although simple, the above tips are all efficient, especially when combined.
As you read, there are multiple factors to remember while trading, but most importantly, staying rational and not letting your emotions take control.
If it ever does get to a situation where you’re starting to feel overwhelmed, the best trade may be no trade, and that’s ok.