The cryptocurrency market has witnessed several up cycles and down cycles since its emergence in 2009. Billions of dollars have been wiped out in down cycles, while every upcycle has added thousands of crypto millionaires to the market. To get a perspective, over $700M in longs got liquidated in just 24 hours earlier this month. Events like the FTX fiasco have left the future of millions of investors in jeopardy. Portfolio management is a rare skill in the 300 million-strong cryptocurrency market. What differentiates seasoned investors from retail investors is a full-fledged strategy to safeguard their crypto portfolio in a down market.
Entering the crypto market with paper hands is a recipe for disaster. Especially for beginners, sentiments and emotions often dictate their investment decisions. It is extremely important to detach emotions while putting your money in cryptocurrencies. In this blog, we discuss proven risk management strategies to safeguard your crypto portfolio in a down market.
Strategies To Keep Your Crypto Portfolio Safe In A Down Market
Dollar Cost Averaging: You can never go wrong with dollar cost averaging (DCA). Many beginners commit the mistake of buying the top solely due to positive price action. Remember, an upward movement is followed by a correction, and this is where you can get rekt. Unfortunately, it is impossible to time the market movement. However, you can counter this risk by dividing your capital into multiple parts for multiple entries into a token. Say you have $500 to invest in $ETH; you can divide the amount into three parts- $150, $150, and $200, to take multiple entries as the price goes down. With DCA, you can counter a downturn and maximize your gains with lower entries.
Diversification: The crypto world is witness to the Terra-Luna collapse, an otherwise fundamentally strong project. The gist- crypto is anything but certain. You have to be prepared for the worst. Diversification is one of the best strategies to safeguard your portfolio in such a market. Instead of putting all your money into one project, invest in multiple cryptocurrencies with different use cases. With diversification, even if one of your investments goes red, the others can compensate for it. DeFi, Web3, Metaverse, and NFTs are the most popular industries within the crypto ecosystem.
Detach Emotion From Trading: Fomo and Fud are for the faint-hearted. Honing your investment skill by reading stuff on social media is great but making investment decisions based on internet theories reverses all the progress. DYOR (Do Your Own Research) before investing in any new cryptocurrency or exiting a trade. Many investors end up on the wrong side due to exiting trades in loss. The crypto market moves in levels. It is normal for a token’s price to retrace after you take the entry. If you have done thorough research before investing in a cryptocurrency, trust your decision. Everything you read on the internet is someone else’s opinion based on their research. Follow your strategy and try to have more profitable trades than loss-making trades.
Always Have A Stoploss: The crypto market is extremely volatile, and trades may go opposite to your planning due to certain reasons like a bearish sentiment, declining volume, etc. When it is impossible to face loss, minimize it. And the best way to do that is by having a stoploss across your positions. It is impossible for you to track your positions 24/7. A stoploss takes care of your portfolio while you are asleep or doing stuff other than chasing green and red candles on your PC. Once you know how much you can afford to lose (say 2% to 5% of a position), you can put your stoploss accordingly, and your position will be exited automatically when the price range hits.
Right Entry Right Exit: As mentioned earlier, it is impossible to time the market perfectly. Therefore, it is extremely important to book profits regularly. Remember, unrealized profit means nothing. You must focus on trading levels. Buy low and sell high. Keep an eye on the fear and greed index to understand the market sentiment. Track the buy and sell volumes to understand the cycle. That’s the recipe for high-percentage crypto trading.
Final Word
Crypto is a market where money moves from weak hands. For 10 people to make crazy money, thousands have to get rekt. To be among those 10 investors, you must have a solid strategy that guarantees safety for your crypto portfolio in a down market. Always think of the long term and set your goals in advance. The aforementioned steps occupy a major part of a seasoned investor’s playbook. These strategies are a result of years of trading experience and hundreds of unintentional mistakes. Mistakes in crypto investment cost money. It is better to learn from the mistakes and experiences of others to build a fortune.