“When is the best time to buy/sell assets in the cryptocurrency market?” That’s the million-dollar question lingering in the back of every crypto trader’s mind.
Much like trading traditional assets and commodities, it pays to observe the price movements of virtual coins. Market timing is a debatable subject when it comes to trading strategies. Some traders are for it while there are those that claim it’s impossible.
In a nutshell, market timing is a buying/selling trading strategy built upon the concept of beating the market by predicting its price fluctuations. The projections dive into technical and fundamental analyses to assess the market and economic conditions. If the investor accurately predicts the price movements, they can move their assets quickly and turn it into profit. A lot of crypto traders and investors use this strategy to predict which virtual coins are set to rise or tank.
Why is the market timing strategy effective in crypto investing?
Crypto investing is a relatively new market and still presents a few nuances. As such, the market comes with risks due to deflations that happen when you least expect, but it does provide a good opportunity for gains. With this, a lot of existing and aspiring investors are basing their buying decision on market timing. So, how does the strategy hold water in the crypto space?
From choosing to take distributions from your 401(k) to selling your rental property because you couldn’t find replacement tenants, every investment decision you make is tied with market timing to an extent. In cryptocurrency, the market never closes, which makes it all the more important to pay attention to price movements.
With its volatile market, understanding the market and assessing your risk tolerance is a vital step before you buy any investments. Knowing the security of your assets, price history, and recurring patterns help you come up with an educated guess. The more you understand how the market works, the more you’re inclined to dwell with a higher risk nest egg that could give you higher returns.
When to Buy and When to Sell
If you want an honest answer, the best time to invest in crypto was yesterday, but the second-best time could be right now. Just take a look at the price history of Bitcoin. If you paid attention to it when it was still new and bought a “minimal amount” of BTC, you’d be a millionaire today.
But since we’re dealing with the present, here are a few tips to help you decide when’s the perfect time to buy and sell:
Use the “Buy Low, Sell High” strategy
Otherwise phrased as “buy the dips,” this basic investment technique refers to purchasing more assets as the price falls and/or once it settles. This move is best recommended to use in a stagnant or bull market, where the trend usual trend is rising or sideways rather than in a bear market (general direction is downwards).
The logic of the “BTD” strategy involves analyzing charts, short-term and long-term average movements, historical support trends, and laddering buys. Investors can “buy big dips” or “little dips.” The former refers to when the price drops below average while the latter means when the price falls from wherever it placed last. People who buy dips can choose to sell fast for a profit or hold onto it to build a long-term position or use it to incrementally take gains. Bottom line, the crux of the strategy is to buy at a lower price, not high. Doing so gives you less room for big mistakes.
When it rates lower than the average historical performance
While purchasing a dipping asset is an ideal strategy, it’s hard to tell how the price will perform in the next hour or the following day. Educated guesses based on analysis can only give you enough information. Meanwhile, there’s another way you can consider entering the market: when the price of a famed virtual coin rates lower than its average historical projection.
There are cryptocurrency websites that provide a “moving average” table that illustrates the best possible points to enter and exit the crypto market. Don’t buy when the price is peaking. Instead, wait for it to settle and purchase after the sell-off point.
Sell when there’s a sudden peak
When it comes to selling your coins, you need to consider your finances, risk tolerance, tax consequences, and the reason why you initially invested in crypto.
Yale researchers studied the price movements of major cryptocurrencies and found that the best risk-free time for trading digital coins would be the following week in which the price encountered a sudden increase at more than 20% and sell another after a week.
When to NOT Buy or Sell
When buying cryptocurrencies, you should watch and study the price movements closely before you take action. The same goes for selling, don’t rush and jump into selling only to expose your coins to the potential of significant losses.
When you have a case of FOMO (Fear of Missing Out)
Indeed, it’s hard to watch Bitcoin, Ripple, or other coins peaking like crazy in just a few minutes. Finding people flooding trading groups, Reddit, Telegram, and other discussion groups to talk about the rise is even harder to watch as an outsider.
However, you shouldn’t let this fear of missing out to trigger your impulse decisions (buying the top coins, panic selling the bottom) and join the bandwagon. Missing out on big activities often causes beginner traders and investors to immaturely buy an asset so as not to miss out on a presumed opportunity. The best way to get over this situation is to shrug off the noise and base your investment decisions based on logic, not on emotion.
When you don’t understand the technology
What makes cryptocurrencies highly innovative and forthcoming are their primal technology--blockchain. When you start investing in virtual coins, you can’t rely on other people to dictate what moves you should make next. If you don’t have a firm grasp of the foundations and workarounds of the technology yet, do more research first. Otherwise, jumping head-first into things will be more risky.
Once you understand what consensus algorithms, block rewards, premining, on-chain/off-chain, and all the other jargon used in the industry, you’ll have a more holistic of what industry leaders are talking about. Soon, you’ll know when you’re ready to penetrate the market as a knowledgeable investor.
When you’re vulnerable to FUD (Fear, Uncertainty, and Doubt)
The goal of FUD is to encourage you to sell, not buy. For instance, when scammers want to purchase a coin at a lower price, they will intentionally spread negative news about hacking, security issues, and others to destabilize a challenging market and get other traders and investors to panic sell.
Knowing that the crypto market is volatile, it can be easy for FUDsters to manipulate the market and start a pump and dump scheme--having investors “dump” their assets with the risk of losses and giving FUDers to catch the dumped digital assets at a cheap market price.
Again, the best thing to do when you sense this happening is to use logic. You bought the assets for a reason. Get behind the motives around this scenario and don’t act on impulse.
The Bottom Line
Purchasing virtual coins is now more viable than before. If you aim to practice the buy-and-hold strategy, you need not worry too much about market timing. Do bear in mind that this strategy is for satisfying your long-term goals. If you’re looking into short-term profit, then timing should be your utmost priority.
Whether your strategy is to “hold on for dear life” (HODL) or follow the iceberg order, the best time to buy and sell crypto depends on your reasons, available resources, and of course, the market.
Interested in getting better at watching the price movements? Check out our blog to learn more about timing your crypto investments!