Volatile cryptocurrency markets cause market volatility, with prices rising and falling rapidly. Prices can also move in one direction for extended periods of time, especially during bull and bear markets. When the buying market begins to reverse due to a slight price drop or trend change, uninformed and unskilled investors sell their positions for fear of loss.
For this, we will look at what causes panic selling, how to avoid it, and how to identify possible points of price reversal before a significant price drop.
What is Cryptopanic Selling?
During panic selling, traders are forced to sell their positions for fear of a large price drop. This situation can be caused by declining cryptocurrency values due to negative sentiment, minor price corrections, sudden changes in market conditions, and other similar issues.
This situation can affect investors in a number of ways. For some, the position may already be in the red and fear further losses. For others, the position may not be making a reasonable or desirable profit, but they are forced to sell out of fear of no profit. It prevents you from taking full advantage of it and in most cases puts you in a worse position than before you opened the position.
Panic selling can cause a large and sharp price drop in the crypto market. When many people let go of their positions, the price drops rapidly. This phenomenon is often caused by some negative signal spread by rumors, fears and overreactions. When panic selling occurs, prices can start to fall, triggering a crypto bear market. At this point, many investors do not or forget to do rational analysis, but let go of their positions for fear of increasing losses.
6 Ways to Avoid Panic Selling
Panic selling never helps. It’s best to avoid panic selling altogether, as it often results in losing money. With that in mind, here are 6 ways to avoid panic selling cryptocurrencies.
1. Invest only what you can afford to lose
One of the best ways to invest is to use an amount that you can afford to lose or have no immediate need for. This will help you get rid of your emotional attachment to your invested money. Additionally, by investing money that you don’t need immediately, you can avoid being driven by short-term volatility because you believe the price will recover.
2. Always think long term
The crypto market is volatile, with large price fluctuations all the time. A longer-term view is usually safer, as you don’t suffer from daily price fluctuations or seasonal bear markets. Markets are volatile, but those with a long-term view can summarize in simple terms what is happening in the market. It’s clear that it’s solid.
3. Dollar cost averaging
Dollar cost averaging does not invest all your capital in one position. Rather, invest a little at specific intervals over time. This way, a price drop won’t affect all your positions because you aren’t investing at the same price.
Dollar cost averaging can protect you from the negative effects of a bear market.
4. Diversify your portfolio
Another way to avoid panic selling is to diversify your portfolio. Investing in non-cryptocurrency assets can help you keep your cool, as your entire investment is less likely to go down at the same time.
One of the best ways to diversify is to invest in uncorrelated assets, i.e. assets whose price movements are not driven by the same factors that drive the cryptocurrencies you invest in. That way other assets may still be in good shape. When crypto prices drop.
5. Always do your own research
Always do your research before investing in crypto. Research should analyze technical, fundamental, and emotional aspects. Taking the time to analyze and research before taking a position can give you some form of confidence in your position. Additionally, knowing why you entered a trade can help you continue trading even in adverse circumstances.
6. Embrace market fluctuations and stick to your trading plan
You are expected to have a trading or investment plan before putting money into an asset.Just as many investors find it difficult to stick to their plans, doing so can help you.
How To Identify Crypto Market Selling
Traders use different types of analysis to identify potential selling points in the market. We will see how to do this using technical and sentiment analysis.
Use of technical analysis
Traders can use candlestick patterns to identify key points in the market where a bullish trend is likely to reverse. Hammers and shooting stars, for example, can help you know when a buy trend is likely to end, especially when paired with other price action or technical tools.
Technical indicators such as the Relative Strength Index and the Stochastic Oscillator can also help you know when buying is weakening. Combining this knowledge with other analytical methods can help you get out safely before prices drop significantly.
Using sentiment analysis
General market sentiment regarding crypto or a particular crypto market can influence direction. For example, if the overall mood in the market is optimistic, prices may continue to rise. Fear and general skepticism can cause prices to start falling rapidly.
Staying abreast of general news about the markets you care about and the cryptocurrency market can help you stay informed about market conditions. Additionally, being informed about the general sentiment surrounding the crypto market can help you make early decisions about open positions.
If you find it difficult to follow the news or need extra support in your decision making, the Bitcoin Greed and Fear Indicator can always help you know the mood of the market.
Panic Selling Opens Up New Buying Opportunities
Large sales should not be put off completely as they open up new opportunities for those who can take advantage of them. can get an entry. These investors use a variety of analytical tools to understand when prices may bottom out and reverse.
By following the trading plan and other tactics discussed in this article, you can avoid panic selling and reduce the rate of prematurely closing trades.