Anyone can be right and profitable in an upward trending market. Even a poorly timed buy order at a local top guarantees a profit assuming the trader plans to sit on their trade for a bit. But is trading your way through a bull market really worth it? Well, it depends.
Before you start trading in a bull market, it’s good practice to ask yourself a set of questions beforehand:
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Are you skilled enough to trade this market, or at least take the risk?
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Do you have enough capital to make trading worth your time?
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Do you believe in the long-term success of crypto?
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Do you believe in the long-term success of the crypto you are looking to trade?
If you answered: yes, yes, no, no and are looking to capture quick profits without the systemic risk investors face, then trading can be suitable for you.
If you answered: no to questions 1 or 2, then trading isn’t suitable for you right now.
If you answered: yes, yes, yes, no and are looking to capture quick profits without the systemic risk investors face, then trading can also be suitable for you.
Assuming you are eligible to trade and ready to start, below are three strategies that will help you navigate your plan. These strategies apply to people that answered no to either or both of questions 3 and 4. If you answered yes to either of these, these strategies can still apply, but investing long-term is also a solid alternative.
Below are the three most common strategies when trading:
A. Are you looking to stack more of that coin?
B. Are you looking to strictly accumulate USD from the coin?
C. Are you looking to stack BTC from the profits of that coin?
Neither A, B, or C are better than each other, rather each has implications worth considering. If you are looking to accomplish option A, you need to consider not only your skill as a trader but also the momentum of the current coin. Take Ethereum for example. It has been moving quickly to the upside. Buying any dip and selling any top could allow you to stack more coin. As easy as it is to stack more ETH, however, it is easy to be left on the sidelines and stuck buying back in at a higher price leaving you with a smaller stack. At any moment you sell and it rises, you are now missing on gains you would have otherwise realized had you just been more patient and not made any trades.
Options B and C are better suited if you don’t see long-term potential in the coin. If you believe the digital asset has no underlying value, strategy B is best suited for your beliefs. This may mean the market beats you overall. But you can sleep comfortably at night taking specific trades with guaranteed exit plans.
Option C is the most complicated strategy but often the most common among skilled traders. This strategy is complicated because the trader now must watch the movement of any given asset vs. the movement of Bitcoin. Furthermore, the money you invested in the altcoin plus the net return needs to outpace what an equal trade in Bitcoin would have made. In a market full of momentum, this becomes especially challenging as the threshold to beat rises with the upward trajectory of Bitcoin. Strategy C can be great when Bitcoin is moving sideways and alts begin to perform well. But everything sounds easier said than done.
Bigger Picture
Hopefully, the above exercise reveals to you how you should be trading and what is the goal if you are doing so. Repeated small gains across rising assets are likely to give false impressions to new traders that they are consecutively profitable and skilled at trading. With further experience, traders eventually learn that unless they are performing exceptionally well, in a bull market it’s almost certain that more money is to be made on the sidelines.
If you enjoyed this blog on trading, I recommend you read up on how random reinforcement can impact your decision-making.