Investing in Bitcoin and other cryptocurrencies is not like trading other assets. Bitcoin itself has only been around since 2009, and investing in it is still very new. As such, it is easy to make mistakes or wrong moves when it comes to the market. But, as any investor knows, you have to make mistakes along the way. They are a crucial part of the investing experience. The good news is that making a mistake is not the end of the world. There are ways to mitigate damage, or reverse the situation. That is especially the case in Bitcoin, as the constant price moves of the asset mean that a reversal of fortune is right around every corner. In this article, we will explore some investing strategies to correct poor trading decisions.
Bad Investing Decisions
Let us first discuss what is a bad investment decision. In the context of this article, these are trading moves that have lost, or are losing money. The reasons behind it can be many. Such as, buying at the top of the market, the trend reversed, there is a general crash in the market, etc. The world of crypto is very volatile, and that is even true for Bitcoin. So, even if an investor made all the right moves, a trade can still be losing money.\
Now, in this article we won't discuss how to solve losses due to scams, theft, or human errors like exposing the private key to a public place. Those types of mistakes are beyond the inner workings of the Bitcoin market, thus there are no market solutions for them.\
Instead, we are going to talk about investing strategies that can lessen the losses of a mistake, or in some cases reverse them. Anyone trading in Bitcoin will make mistakes along the way, there is no avoiding them. But any wrong move can be corrected to some extent, and doing nothing is not a way to avoid the ramifications.
1. Hedging Bitcoin
One of the best investing strategies out there is hedging Bitcoin. It can be started before purchasing the crypto coin, or even after a person already owns Bitcoins. These can be started because there are signs that in the short term Bitcoin might face some price reversals. Hedging is the practice of opening strategic trades that offset or eliminate the losses from the decrease in price of an asset.\
The main way to accomplish this hedging would be by shorting the price of Bitcoin. The basic form of a short is to sell BTC at the current price, and then buy it at a lower price in order to profit from the difference. One of the most common financial instruments available to short sellers are Contracts For the Difference (CFD). They are a form of derivative that does not require owning the underlying asset, in this case Bitcoin, so a trader can buy them even without holding any actual Bitcoin.\
Now, hedging is a really risky strategy. If the price of Bitcoin were to increase, the losses from a short position can quickly climb, and actually be worse than losses from price depreciation. So, it is a strategy for knowledgeable traders that have experience in the market.
2. HODLING
Another strategy to offset losses that doesn't require too much experience if HODLING. Here a trader just holds the Bitcoin as the price falls. It may not seem like an actual strategy, but there are logical reasons behind it.\
The price of Bitcoin and any crypto out there is very volatile. Volatility is a measurement of price variation in the short term. But Bitcoin in the long term tends to be an upwards trending asset. So, by holding to the original Bitcoin position, a trader can offset the losses given enough time. In this case, the short term volatility is offsetted by the passing of time.\
HODLING can actually be the best strategy to reverse mistakes. It takes advantage of the properties of Bitcoin to recuperate the losses without adding any more risk to the operation. So, for any beginner traders out there, HODLING is perhaps the best move, instead of taking more risks with complicated financial investing strategies.
3. Progessive exit strategy
Another way to offset the risk of losing money is to exit the market in a planned way piece by piece. A one time exit can accumulate the losses in a single trade, but by selling portions of the positions at different price targets, a trader can minimize losses. This is especially true because markets don't move in just straight lines, even in a downtrend, there are moments when prices rise.
But this is a very intensive strategy. A trader needs to be sure what are the price targets are, and be prepared to sell at the necessary times. The reason is that the volatility of Bitcoin is such that the speed of price changes is faster than in other asset classes.\
Even if a trader programs the price targets using some sort of bot, that won't eliminate the risk, as the price can move faster than the original prediction. That is why being aware on how to execute the exit strategy, and then watch closely the market, are the keys to successfully exiting Bitcoin with minimal losses.
4. Limit/Stop orders
A great way to prepare for a possible crash is by using limit/stop orders. These are pre-set price ranges that once reached sell the underlying asset automatically, in this case Bitcoin. Of course we are talking about mistakes in this article.\
So, once you are sure a trend is reversing and Bitcoin is about to lose some ground, it is time to set limit orders. In this case it is too late to avoid losing money, but not too late to reduce the damage. At this time there is no need to panic sell the entire portfolio, instead the best thing a person can do is pre-set the target prices and wait.\
The automation will take the emotion out of the act of selling a crypto position. That way a trader can be sure there won't be any second guesses when it is time to exit.
5. Avoid emotional attachments
As early adopters of crypto coins and especially Bitcoin, we tend to develop an emotional attachment to the asset. To avoid any mistakes when trading it is important to be aware of what these may be and how to manage them. There are many crypto projects that will appeal ideologically to a trader, or technically by developing a really cool technology, but those are not rational reasons to hold a crypto coin.
It is important to be aware of what these irrational attachments are and for what assets they are for. That way a person can have a cool head when it is time to sell. But also it is impossible not to have those types of attachments, as there will always be projects of crypto coins that have a personal appeal. It is not wrong to invest in them, just be aware that not all the reasons to buy an asset are rational.
6. Falling prey to FUD
Fear uncertainty doubt (FUD) is a common impulse among traders that makes them want to sell ahead of time. One of the most important investing.strategies to correct a mistake is to manage FUD. To accomplish this a person needs to be aware of the underlying fundamentals and market trends that make a market move up or down.\
In Bitcoin, because of the volatility FUD is an ever present feeling. As such, one must never sell a position out of a fear that it may go down that is not supported by research. A trader has to be aware of the trends moving the price at any given moment, and that way it is possible to know if selling is because prices are going to fall, and not out of a feeling.\
Bitcoin has been around for little more than a decade. It is still a very new type of asset, and how it will evolve in the future remains unknown. The entire crypto economy is basically new, and it is very different from what it came before it. In this type of environment mistakes, and errors are common.\
But so are the opportunities. Only in Bitcoin and crypto can a person trade, invest, participate in hedge funds, and generally use financial instruments that in the past were just for the financial elite. Bitcoin started to democratize the economy in 2009 and now in 2021 that process has grown exponentially. It is important to remember that no matter what, we are still early in the investment curve, and the opportunities will outnumber the losses for the early adopters.
Conclusion
Bitcoin investing will remain a risky undertaking for the foreseeable future. In such a volatile market mistakes will be common and unavoidable, but none will be fatal. In this article we talked about some possible investing strategies a person can use to reverse mistakes, or mitigate the damage. But above all the one thing to remember is to not give up, because giving up is worse than any market trend.
