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NOV 26, 2023

Strategizing for Bull Runs in Digital Assets: A Beginner's Deep Dive

by Spektre, Spektre | SKTR

In Strategizing for Bull Runs in Digital Assets, beginners learn to navigate crypto markets. It covers the 'Rising Tide Effect,' cautions against overleveraging and clickbait, and emphasizes strategic planning and emotional control in trading. Practical examples and insights guide users in making informed decisions, avoiding common pitfalls, and optimizing investment strategies in volatile markets

1. Rising Tide Effect in Digital Assets

Digital asset markets, like their traditional counterparts, experience a 'rising tide effect' during bull runs. This phenomenon means that many, if not most, digital assets will see a price increase. However, this general upswing isn't always based on strong fundamentals. The 2017 crypto bull run is a classic case where virtually all cryptocurrencies benefited, regardless of their underlying technology or market viability. As a beginner, it’s crucial to differentiate between genuine growth and market hype.
Study each asset’s whitepaper, understand its technology, and monitor its development and community engagement. Analyze the historical performance of similar assets during past bull runs. Look for assets that not only rose in price but also maintained some level of stability post-run. Utilize tools like blockchain explorers and cryptocurrency analysis platforms to assess the health and activity of a project. Once you've done this, you can begin to identify common variables among the projects that performed well to build an understanding of where the value is accruing in the system and build your thesis as to what is driving that value.

2. Debt Danger: Overleveraging in Crypto

Crypto markets are known for their volatility. Using debt to invest can amplify risks. Investors who borrowed to invest in Bitcoin during its peak in late 2017 found themselves in a precarious position when its value plummeted in early 2018. It's advisable to use only disposable income for investing in digital assets and never invest more than you can afford to lose. Create a specific budget for crypto investments, separate from essential expenses and emergency funds. Simulate different market scenarios if considering investing a large sum.

3. Leverage Lure in Crypto Trading

Leverage in crypto trading, which means borrowing funds to increase potential returns, can multiply gains as well as losses. A beginner using leverage to buy Bitcoin might achieve significant profits if the price rises, but a small price drop can lead to substantial losses. Start without leverage and consider using it cautiously as you gain experience. Begin with paper trading or a demo account to practice trading with leverage, understanding its mechanics and potential outcomes before risking actual capital.

4. Clickbait Caution in Crypto

The digital asset space, especially during bull runs, is filled with hyperbolic claims and false promises. The ICO craze of 2017 and 2018 led many to invest in projects without solid foundations. Always conduct thorough due diligence, checking the project’s team, track record, and community feedback. Establish a checklist for evaluating new projects, including verifying team legitimacy, understanding tokenomics, and assessing the roadmap. Participate in community discussions and seek opinions from experienced investors.

5. Planning and Strategy in Crypto Investments

Having a well-thought-out investment strategy is crucial. Diversification was key during the 2020 DeFi boom, as those who spread their investments across various projects fared better. Assess your risk tolerance and goals, diversifying your portfolio across different digital asset types. Regularly review and rebalance your portfolio to align with market conditions and investment goals. Consider dollar-cost averaging to mitigate risks associated with market timing.

6. Emotional Pitfalls in Crypto Trading

The crypto market is prone to emotional trading due to rapid price movements. Many traders experienced significant losses due to panic selling during the March 2020 market crash. Develop a clear trading strategy and adhere to it, avoiding impulsive decisions. Utilize stop-loss orders to manage risk. Practice mindfulness and emotional self-awareness, maintaining a trading journal to track your trades and emotional state, helping identify patterns and improve decision-making.

7. Greed Check in Bull Markets

In bull markets, it's common for traders, and investors, especially beginners, to get overly optimistic, ignoring potential signs of downturns. The late 2017 cryptocurrency surge is a perfect example, where many held their investments too long, hoping for even greater returns, only to face significant losses during the early 2018 correction.
To navigate this effectively, it's crucial to set and adhere to specific profit-taking targets. Regularly reassess your portfolio, and don't hesitate to secure profits, especially after substantial gains.
Implementing a strategy that includes setting and respecting profit-taking levels and stop-loss orders can help in avoiding the pitfalls of greed. Keep in mind that market trends are cyclical, and taking profits is an integral part of successful investing. This disciplined approach can protect your investments from abrupt market changes and ensure long-term success.
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