Bear markets are riddled with panic selling, the act of exiting the market at a low price based on fear. While FOMO tends to apply more to buying when the markets are on the incline, panic selling is more closely associated with bear markets. The Fear and Greed index differentiates between the two using a scale based on market sentiment, allowing anyone to observe the market sentiment before making a trade.
Panic selling is not exclusive to the crypto markets, in fact, it can be found across stock markets and financial markets too. People have an ingrained characteristic that allows fear to override logic, often resulting in poor choices, particularly in the investment sector.
Fear is often instigated by the news, particularly in the U.S, China and UK, where FUD spreads like wildfire and share prices can drop in an instant. Take Elon Musk's tweets about Bitcoin and Dogecoin and the media hype surrounding this as a prime example.
To avoid this, traders should create an investment plan that they can adhere to and refer back to when emotions get the better of them. To avoid any pain when it comes to investing in crypto, we suggest you pay close attention to the following pointers.
How To Avoid Panic Selling
If you've found yourself tempted to take unprofitable action, consider the following tips on how to avoid panic selling entirely.
Always Come Back To The Basics
When it comes to making any decisions in the crypto trading space, always come back to the primary objective: cryptocurrency's value proposition. While there weren't too many early investors, many since then have entered the market to tap into the incredible gains that crypto has presented over the recent years.
When in doubt, don't get sucked into price activity and instead return to crypto's value proposition. If you've invested in a cryptocurrency with impressive fundamentals that you believe in, there should be nothing to worry about in the long run. Similar to buying a property in a good area of a city, as long as the suburb remains that way your investment is a solid one.
Consider reading a research paper or two on a cryptocurrency to become familiar with its use case, and use case potential, in order to weed out the more risky assets.
Start By Investing Capital That You Don't Need
You've heard the saying "never invest more than you're willing to lose" but consider this: if you invest $100 that you rely on each month if the market dips you'll want to pull the money out as soon as possible to cut your losses as you need that money to survive.
On the other hand, if you invest money that you don't need that month or in the months to follow, small price changes will carry less emotional weight and have more chance of achieving long term benefits.
Focus On Long Term Results
Anyone invested in the crypto market knows that in a matter of ten years the price of Bitcoin went from a couple of cents to $67,000. While these returns are almost unbelievable, bear in mind that they took a decade to achieve.
Although the markets have since fallen, the long term returns are still impressive and certainly worth tapping into. Every savvy investor will always keep their eye on the long term perspective. As adoption increases with countries around the world incorporating Bitcoin into their financial systems (some even allow citizens to pay their tax in crypto), there is plenty more way to go.
There's no denying that we have all become accustomed to instant gratification, but take a look at the following average annual prices of Bitcoin and observe the value in focussing on the long term:
Prepare For Pullbacks And Accept The Risks
The crypto market is notorious for being volatile, the best way to tackle this is to accept it. The markets have been known to lose thousands of dollars in a couple of hours. If you want to invest in the best performing asset in history, you need to be prepared for that.
While the Bitcoin price has lost over 85% of its value several times in its existence, it has reclaimed that value every single time. Even the individuals that bought BTC at $20,000 in 2017 regained their value and then some in the bull run of December 2020.
Be prepared to sit through some market dips, but know that it will recover. If you're focused on the long term perspective and have used capital that you don't rely on, pullbacks and market dips should not be damaging factors.
Use A Dollar Cost Averaging Strategy
The DCA strategy involves buying Bitcoin at a certain time of the month as opposed to based on market activity. Buying Bitcoin, or any other cryptocurrency, on certain days of the month will mean that you pay varied prices for the coin.
Say you decide to invest $100 a month in BTC. One month you might get 0.002 BTC while the next month you get 0.003 BTC. Dollar cost averaging levels out the entry price when accumulating the coin and allows you to become less emotionally attached to the market's movements and therefore less likely to panic sell.
The best crypto investors are able to commit to some degree of emotional detachment, have a strong investment strategy focused on long term gains, and only invest in highly vetted, functional coins. Building a portfolio of coins from strong projects will help to alleviate any market-related uncertainty and allow you to ride out the dips more confidently. If ever you feel tempted to panic sell, revisit this list of factors and resist the urge!
You can also read our article on Emotion Management In Trading for extra insight on how to keep your emotions under control while trading.
Disclaimer: This article is intended for communication purposes only, you should not consider any such information, opinions or other material as financial advice. The information herein does not constitute an offer to sell or the solicitation to purchase/invest in any crypto assets and is not to be taken as a recommendation that any particular investment or trading approach is appropriate for any specific person. There is a possibility of risk in investing in crypto assets and investors are exposed to fluctuations in the crypto asset market. This communication should be read in conjunction with Tap's Terms and Conditions.