Brought to you by the Liquid team to help you make sense of crypto.
We know what you’re thinking. We’re (maybe) in a bull market, survival should be simple.
But it’s surprisingly easy to be lulled into a false sense of security when prices are trending upwards.
There are a few risks and pitfalls you should be looking out in a crypto bull market.
1) Take profits periodically
Many novice traders failed to take profits in the 2017 bull run. They still regret it.
When prices are shooting up it’s hard to fathom that they will come back down. Consumed by euphoria, investors just continue to wait until they have earned enough to never work again.
With hindsight, it’s obvious that huge speculative price increases are largely unsustainable. Whether you are a holder or a trader, it’s best to take periodic profits.
Sure, you might miss out on some larger gains, but you will also lock in profits - something many traders and investors fail to do.
Remember: profits only exist once you have realized them.
2) Do your own research
This is such a common saying in cryptocurrency, but it has to be said – again. Especially in a bull market.
As prices start rising, the hunt begins. Everyone is looking for the next micro-cap coin that is going to explode in value.
While you join the hunt, other people will try to sway your views by suggesting investments.
Your best course of action is to conduct your own research on every investment opportunity. Don’t blindly invest based on the word of others.
3) Manage your risk
Prices are perhaps even more volatile than normal in a cryptocurrency bull market. Even if the prevailing trend is up, sudden downwards moves can liquidate trades before you can react.
Make sure you are properly managing risk to protect your positions and your investment capital.
See our article How to manage risk as a cryptocurrency trader.
4) Build your knowledge
The internet is truly amazing. There is an abundance of knowledge on every topic you can imagine waiting at your fingertips.
There is never a better time to learn than the present. Start digesting knowledge that will help your investments and trades. Doing so can enhance your profits in a bull market.
5) Trade safely and carefully
Trading in a bull market can be dangerous. Sure, prices can shoot up and yield generous returns. However, if you enter at the wrong time you can lose a lot of money. Prices are not guaranteed to go up.
Pull backs happen. We’ve already talked about risk management, but you also need to trade with care.
Don’t over-leverage. Carefully select the size of your trade based on the overall size of your trading capital.
6) Dollar cost averaging
Not everyone is a trader. It’s a tough gig. Frankly, most people would like to invest in an asset and forget about it for a while as it increases in price.
If this sounds like you, that’s great. Finding the best investment price is tough, so invest gradually over time. This is known as dollar cost averaging.
Dollar cost averaging is a great way for you to invest over time and cut through any market volatility that may impact your investment price.
7) Avoid FOMO
FOMO = Fear Of Missing Out.
When markets are going up, everyone gets a bit of FOMO. You want to jump in and capitalize on the price hike, just like the rest.
The thing is, that’s a great way to lose money. If you jump in when prices are sky high, it’s likely that the market will correct and you’ll be at a loss.
Contain your FOMO. Enter the market on your terms.
Every good investor is diversified. This means investing in multiple assets across different asset classes.
Cryptocurrency is a high-risk investment. It is recommended that only a small portion of your investment portfolio is in cryptocurrency.
You should also look to diversify within cryptocurrency itself. There are lots of assets to choose from. Find the ones that you think have a promising future.
9) Raise your stops
Whether you are longing or shorting, raising your stop-loss levels along with a profitable trade is a great way to lock in profits, allowing the trade to continue to run if price moves favorable.
10) Don’t get consumed
Profits are exciting. They aren’t everything.
Even if the markets are flying and your portfolio is going up and up, remember to take some time away from the charts too.
Bonus: Stay safe out there
Cryptocurrency is a wild place. Watch out for hacks, scams, phishing attempts - all of it.
Keep your funds safely stored and use an exchange you can trust.
This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.
Providing liquidity for the crypto economy.