The ever-growing bull market has been called investor heaven for a reason. During periods of stable growth in quotations, almost any, even the most aggressive portfolio with the maximum level of risk laid down, does not cause concern to the holder, and the income figures regularly cheer up.
However, in such a situation, if you do not take a balanced approach to making investment decisions, you can make gross mistakes and get an annoying loss instead of a positive result. In this article, we will look at the types of investment strategies that are suitable for today's market situation.
Bull Market: Characteristics, Understanding the Trend
It is common to call a bullish market in which asset prices are rising steadily. A variety of tools are used to pinpoint that there is indeed a steady upward trend. The simplest option is that the market is considered bullish if quotes rose 20% or more from previous lows.
Economic indicators such as gross domestic product, unemployment rate, and inflation rate are important indicators of the health of the economy. During the bull market, these indicators show signs of improvement, signaling a strong economy. As a result, investors are more confident in their investments and willing to invest more capital in the stock market.
In addition to the characteristics listed above, another important factor in the bull market is the availability of liquidity. The notion of liquidity refers to the ability of investors to access cash quickly and easily. There is often increased liquidity in the bull market, allowing investors to buy and sell stocks or other assets quickly and easily. Increased liquidity could lead to further increases in instrument prices.
A combination of rising asset prices, investor optimism, strong economic performance, and increased liquidity is what drives the bull market. This combination creates a positive feedback loop, allowing prices to rise. As stock prices rise, investors become more confident and willing to take on more risk, which in turn leads to further increases in asset prices. It's this cycle that makes bull markets so profitable for investors.
There is also a nuance. Growth in the bull market is not even. Due to numerous speculative operations, corrections are possible, sometimes very significant. These factors should give investors food for thought and a reason not to go euphoric. Their main task is to choose the right investment strategy and assets for investments.
Bull Market Trading Strategies
Investors looking to capitalize on the bull market need to understand strategies that will help them maximize their returns. To achieve this, investors need to consider various methods that can help them benefit from positive market conditions.
HODLing: Long-Term Investment
This strategy is considered one of the easiest on the market. The investor who chose it only needs to purchase assets and keep them in the portfolio throughout the planned period. Whoever chooses it does not need to constantly make transactions, monitor the situation in the market, and spend their efforts and funds. At the same time, trading costs are reduced, and taxes must be paid only once - when selling a portfolio at the end of the investment term.
However, you should keep in mind that the Buy-and-Hold strategy works only on a long investment horizon, from 3-5 years. Long-term implies high-quality portfolio diversification in order to reduce the level of risk.
Trend Following Trading
Trend trading is a strategy whereby a trader determines the direction of a trend and trades in that direction. Trending trading strategies are probably the most popular type of strategy among traders and investors.
Trend trading is the process of analyzing the directed momentum of the market and participating in this movement. The essence of the strategy is that as soon as the market begins to grow or fall, traders and investors immediately join this movement, and the more powerful the movement, the more participants join the process. This phenomenon is called "herd feeling”.
The trend can develop within any time frame. Traders can use short-term strategies like scalping, whereas investors prefer longer-term strategies.
Dollar Cost Averaging (DCA)
As one of the best ways to make money on cryptocurrencies, applying a dollar-averaging strategy can be very effective. This approach involves periodic investment of a fixed amount regardless of market fluctuations. Such a strategy minimizes the impact of volatility, which is quite consistent with the goals of long-term investors looking for a better way to make money on cryptocurrencies.
From a psychological point of view, this strategy may seem simpler. DCA reduces stress and emotional decision-making in market fluctuations, allowing investors to make more rational investments while avoiding impulsive responses to market highs or lows. And it could also potentially reduce the average value of an invested asset over time, allowing investors to purchase more units at low prices and less at high prices.
The downside, however, could be the likelihood of a lower yield in the growing market than the initial one-time investment, due to capital restraint.
Altcoin Opportunities
Even in November 2023 Michaël van de Poppe, one of the leading voices in the cryptocurrency arena, advised to invest in altcoins while the rising trend only begins.
The mood of the market since the end of October changed from fear to greed which will be coordinated with the dynamics of the market of altcoin and assumes that investors become more confident in the potential of these digital assets.
Also, the financial adviser explained that you should not make investments in alternative cryptocurrencies with small capitalization. In his videos on Youtube Michaël van de Poppe considered 5 altcoins: Ethereum, Arbitrum, Chainlink, Optimism, and Sui.
Ethereum is considered the most reliable and perspective as "it already shows significant growth and has considerable potential". According to the strategist, solutions of the 2nd level of scaling of Arbitrum and Optimism can bring higher profitability.
Chainlink and Sui represent unique projects and are considered as the most perspective altcoins. Van de Poppe shares the strategy and suggests enclosing 40% in Ethereum, 20% in Chainlink, 15% in Arbitrum and Optimism, and 10% in Sui. The expert emphasizes that "there is no uniform point of take profit, and trading depends on the flexibility of thinking and ability to adapt to changes in the market".
As the market keeps the ascending impulse, and Bitcoin has already overtopped assessment in 63,000 dollars, a season of altcoins is in high gear. There is a Bitcoin halving event ahead therefore now can be the right moment for investments before it’s too late.
ICOs and New Token Sales
The Initial Coin Offering (ICO) is a method of raising funds for new cryptocurrency projects. Potential investors can purchase project tokens that can be used within the project or sold on the exchange for profit.
Before investing in a cryptocurrency project through the ICO, it is important to carefully study the project documentation, evaluate the development team, and assess the potential of the idea. Investment in ICOs comes with high risks as many projects fail to deliver on their promises or fail to achieve market success.
Advantages of investment in ICO:
- The ability to purchase project tokens at a low price and make a high profit with the successful development of the project.
- Direct access to innovative ideas and technologies at the earliest stages of their development.
- The ability to influence the development of the project if the investor has a significant share of tokens.
Disadvantages of investment in ICO:
- High risk of capital loss, since many projects do not fulfill their promises or do not achieve their goals.
- Lack of regulation and insufficient transparency of projects can lead to risks of fraud and corruption.
- Inaccurate information about the project and its prospects can make investments in ICO too risky.
Active Trading Strategies
Day trading: In contrast, cryptocurrency day trading involves the simultaneous purchase and sale of cryptocurrencies. Traders use technical analysis and risk control to capitalize on short-term market movements. This approach requires a deep understanding of market dynamics and discipline to avoid emotional trading decisions. This approach is often considered the best way to make money on cryptocurrencies for those who are well-oriented in a rapidly changing environment.
Swing trading in the cryptocurrency world involves holding assets for an extended period of time in order to profit from market shifts. Using both technical and fundamental analysis, swing traders seek to determine the potential price movement. This method, similar to day trading but with a longer time horizon for each position, is often seen as the best way to cash in on cryptocurrency for those who prefer a more measured approach.
Scalping is a high-frequency trading strategy that involves making many quick deals aimed at making a profit even from the slightest price changes. Contrary to the risks, the possibility of making quick money makes cryptocurrency scalping a popular strategy among traders. Scalpers rely on different trading methods, indicators, and other crypto tools to make informed decisions. Scalping needs a deep understanding of market dynamics, data-driven trading rather than emotions, and the ability to make quick and informed decisions, so it is usually applied by experienced traders.
Positional trading is a common trading strategy in which a trader holds a position in securities for an extended period of time, usually for several months or years. Positional trading strategies are built on traders ignoring short-term price movements in favor of accurate selection and profit from long-term trends. This type of trade is most reminiscent of investing, with the fundamental difference that investors operating in buy-and-hold technology can only go long. Of all trading strategies, positional trading covers the longest time interval. Accordingly, there is more potential for profit, but at the same time, there is an increased risk. The advantages of positional trading are the limited maintenance of positions, the use of more global trends, and the weakening of market "noise."
Risk Management
Cryptocurrencies are a complex and risky class of assets. However, using robust risk management strategies, you can reduce the chance of loss and improve the chances of success:
- Rule of 1%: This is a simple strategy, which is that no more than 1% of total capital is at risk when investing or trading. For example, if you have $10,000, you can invest no more than $100 in one cryptocurrency.
- Stop loss and steak profit orders: allow you to automatically close an item when a certain price is reached. This helps protect against losses and lock in profits.
- Diversification and hedging: Portfolio diversification is the allocation of assets into different classes and projects. This helps reduce the risk associated with a drop in the price of a single asset or project. Hedging is a more advanced strategy that protects against losses by buying another asset.
- Prepared Exit Plan: An exit plan is a pre-conceived scenario of action in case of loss or profit. This helps to avoid emotional decisions that can lead to loss of capital.
- Own Research (DYOR): It's important to do your own research and explore the project before investing in cryptocurrency. This will help you understand the risks and potential of the project.
Exit strategy
The exit strategy is a pre-conceived business development plan aimed at withdrawing investments from the project at the time of its maximum capitalization.
A successful cryptocurrency exit strategy involves various aspects, such as setting specific price targets, using limit and stop orders, and determining the purpose of the investment. It provides investors with a structured plan to limit losses in the event of a market downturn or capitalize on earnings opportunities during bullish trends.
In short, understanding cryptocurrency exit strategies is paramount in the cryptocurrency world. This involves a clear sales plan, highlighting the need to avoid emotional decision-making and acknowledging the risks associated with keeping digital assets in time.
Conclusion
Bull crypto markets offer significant profit opportunities, but they are also accompanied by serious risks. Therefore, investors should approach any investment in cryptocurrencies with caution and a long-term perspective. Before trading, investors need to do rigorous research, seek professional advice, and invest only what they can afford to lose.
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