If you are buying Bitcoin today, here are a few general tips that could help you trade in volatile times: Set stops, average in, buy the dips, and hold.
Here is what that means:
Quick note: This isn’t investing advice. These are general tools a trader can add to their tool belt. Do your own research and make your own choices!
Set stops: If you are going to buy high (anything that was an all time high in the past 24 hours might be considered “high”) then consider setting stop orders (that means when a certain price is hit, it automatically places a market order). Stops will help you avoid mistiming the market. You lose money on a stop if its below your buy price. However, if you move the stop above your buy price (after Bitcoin has gone up past your buy price), it can help you lock in profits and avoid losses on a volatile day. You can always set a buy order lower than your stop price to pick up more Bitcoin if it drops further. You can always buy back in a little higher if necessary (when you hedge like this, you diminish potential profits in trade for also diminishing risk). Stops are used in volatile markets to ensure against major downturns. They show their value when things happen like a sudden drop from $20k to $15k occurs. They can be pretty distressing when the price only dips below your stop price quickly before rising again… but I mean, risk is the name of the game with cryptocurrency. Please be aware, stops have a negative side, they generally incur fees and are subject to slippage. Learn more about order types. TIP: You can “ladder” in and out of positions by setting incremental buy/sell/stop orders. TIP: In general, try to avoid using stop orders. They should be used sparingly and with purpose. For example, if you buy high and are nervous about seeing a correction in the near future. I rarely personally use stops with Bitcoin, but always use them with altcoins. However, I would use a stop if entering at an all time high.
Average into your position (and out of it): On days like this it makes a ton of sense to average into a position (and out of one as well). It can be tempting to deplete your funds at the current market price assuming the price will move up… However, in practice, Bitcoin tends to be very volatile and go through some nasty downturns here and there. If you average into a position you’ll have cash on hand to buy the dips. TIP: To average in and out positions, try using limit orders on GDAX (as they are instant and have no fees, which is good).
Buy the dips: You know the old saying, “buy low / sell high.” You can’t do that if you buy high (then at best you are buying high and selling higher). Buying on “the dips” (buying Bitcoin when it goes down) is often a better strategy than chasing the dragon (buying high assuming it’ll keep going higher). Bitcoin is known for its quick recoveries. Thus, averaging into a position as it goes down can be profitable. Psychologically it is a better feeling to benefit no matter what direction the market moves than it is to be all-in at a high price and pray the market keeps going up (especially if that will lead you to sell and not hold).
Hold: Sometimes the best strategy is to hold. Holding doesn’t just mean hold through the good times, it means hold through the bad times. If you are nimble then there is a lot to gain from setting stops, buying the dips, selling higher, and rinsing and repeating. If you are invested casually however, there is a real benefit in just holding through the chaos. If Bitcoin goes to zero or never reaches this high again, you may never recover your investment. However, thus far this has not been the case and every holder out there has been rewarded. If you have to pick between sleepless nights and selling low when the price potentially corrects by 20% or more and holding and ignoring the market for a few months… then 1. you likely put too much money on crypto and 2. holding and ignoring the chaos is a lot better for your psychology and most likely for your wallet as well.
Bottomline: Plan your strategy in advance, its not a bad idea to have that include the use of stops, averaging, and buying the dips. If you are going for short term gains, aim to buy low and sell high. If you are going for long term gains, still average in, but make sure to hold. The worst thing you can do is buy high, panic, sell, and then watch the price go up beyond what you could have imagined.