How to Keep Clam and Play the Crypto Correction
Big crypto corrections are always scary, but they are common and somewhat predictable. One plus is corrections like these present a great opportunity to slowly and methodically create a position for the future.
Creating a position for the future now is simply a matter of averaging into top coins around support levels (roughly but not exactly levels like $7.5k, $5.5k, and lower). This is best done by two types of people:
- People who have been waiting to buy the dip. Those who had been mostly or fully on the sidelines, either after selling or after hearing about crypto but not wanting to buy the top.
- People who have been buying. Those who bought higher or lower and watching their gains go away or investment go down the tube on paper as the FUD has piled up and the Bitcoin and then crypto correction set in.
NOTE: Another type of person might buy into the correction are those wanting to play the bounce (buy at the bottom and then sell quickly) and make a quick buck or to grow their stack of coins. Those people can also benefit from averaging into a correction. What those people will benefit from a basic knowledge of technical indicators and a strategy for setting stops (as if the bounce doesn’t occur, this type either needs to sell, or becomes a holder).
Both of our first two types of people need to exhibit two traits:
- Nerves and Patience. It took nerves and patience to hold from $20k-ish to $7.5k (or the equivalent in other cryptos). Anyone who held cryptocurrency held through the correction (as even if you bought at a penny, you still could have cashed out an didn’t). The same grit needed to hold to $20k and then through the correction so far is needed to hold through the last waves of the correction, the potential stagnation, and then the recovery (all events that can last for some time and require more holding). On the other side of the token, those who didn’t give into FOMO buying and have patiently waited for a good entry point now find themselves in a position where they are going to start to have to pull the trigger if they haven’t already (the first logical buy points were sub $10k – $7.5k; equally distributed laddered buys down to $7.5k would leave you slightly ahead here at $9k). The low could be any price, but it is very likely going to be found in the $5.5k – $7.5k range given historic price trends, if it hasn’t been found already (unless we get a long bear market; but if we do we are likely to see both highs above $9k and lows below or around $5.5k in-between).
- A belief in crypto. Everyone looking for quick money either found riches or ruin on the last wave. Those who understood how to short got their opportunity for the big predictable Bitcoin short (we could still be in the middle of that, but the easy money has likely already been made). Meanwhile, those looking for a quick buck got to cash out at the top or shortly after when the top failed to hold. Soon all that will be left are holders and day traders. A day trader doesn’t need to believe in anything to be here, but ideally anyone jumping in at this stage is going to need to believe in the technology. It is the knowledge of the importance of the technology that will be the foundation upon which your patience rests. If all ETH is to you is three letters, then its going to be hard to sit through months of stagnation holding.
So let’s assume someone fits most if not all of the above criteria, here are some ways to play the current market and come out of that with more coins and/or dollars (but first some quick notes):
NOTE: If crypto implodes, due to say a global ban (an unlikely doomsday event), then there is no good place to buy. We are going to assume this isn’t the end, and that at some price crypto recovers and preforms well.
NOTE: With each strategy below you can then “sell higher than you bought for” to recoup some or all of your investment. Just because you buy and believe in crypto doesn’t mean you need to hold to some magic future date.
NOTE: I’m speaking in terms of BTC because BTC dominates the market and everything is anchored to it at the moment. If you want to buy another coin, watch BTC and buy that coin when BTC meets the criteria noted below.
- Ladder buys all the way down to $1k. In other words set limit orders and let them fill. Or, if you don’t use the order books, just aim to buy incrementally as the price falls. Essentially aim for a strategy like this: spend 10% of your bank-roll every $1k BTC drops. If it goes to $1k, it will be stressful for everyone, but you’ll also have $1k buys and an average price of about $4.5k – $5k (assuming you started today). If that is your average price, then there is a lot of historic precedent for you being able to recoup your initial investment and/or profit greatly over time. Even in many doomsday case this works.
- Ladder buys down to a more optimistic support level (from the present sub $9k level down to roughly $7.5k and $5.5k). This strategy is I think the smartest conservative strategy if you want to be in crypto but don’t want to shoot yourself in the foot by being too eager. There is a chance we will never see the $5ks again. However, there are so many forces working against crypto right now, it really isn’t impossible to see us go back to the price levels present before the November rally. If these prices hit, its like hitting the reset button. Everyone gets a second chance to buy at these levels before the next rally, that means you can come late to the party and profit like you had been in crypto since October. That is pretty cool.
- Average in during the stagnation. If you don’t want to buy the dip, you can assume that crypto prices will stagnate after the correction. You can simply start dollar cost averaging at that point. Aim to buy more when the market goes down and less when it goes up if you do this. Only problem here is that crypto isn’t necessarily going to stagnate. It could just bleed out until the bad news passes buy then rally again once people realize that technology-wise and accessibility-wise 2018 is going to be the biggest year for crypto yet!
- Wait until clear signs of recovery. Wait past the correction, wait until the stagnation (assuming it comes and we don’t skip that phase), and then wait some more until a bull market is reconfirmed. This requires being nimble, and there is a near zero chance you’ll be buying the bottom, but it also avoids having to average into the correction. It is the most conservative strategy, as if things go badly, you aren’t in the market (or haven’t added to your position). The problem with this is that we could get a few false recoveries, thus causing you to buy higher than you would otherwise. Essentially though, here you are just waiting it out and waiting for charts and markets to show bullish indicators again.
I don’t see many more options. As you want to be in crypto, but you don’t want to wait until after it has recovered to buy (we want to buy low and sell high, or buy low and hold; so no point in waiting until prices go back up all the way… if that is to happen).
TIP: Although initially there had been some bullish indicators back in Dec – early Jan, most indicators have pointed to a correction since BTC failed $19k and then $17k on the bounce. Not only did you have this big run up indicative of a classic bubble and pump and dump, you also had the conclusion of that playing out (and many analysts picked up on it). Some bearish analysts, unclouded by optimism were quick to call the current levels we find ourselves at. Was it a self fulfilling prophecy? Would it not have happened if it wasn’t for the string of FUD? Are bears taking advantage of all this and pushing the price down? Sure, the answer is likely yes to all of that, after-all BTC’s chart has looked ugly before and we saw rallies at those points (so the bullish sentiment wasn’t fully unjustified). The point though is this: like it or not, one can generally get a good sense of what is coming next by paying attention to analyses of crypto charts. Take a look at tradingview.com and keep an eye out for when consensus starts to be that we are seeing a recovery. You can’t base your strategy on one person’s opinion, mine or an analyst on trading view. However, by sourcing many different opinions and by preparing for both the best and the worst, you can be well prepared to make your own educated choices.