Cryptocurrency markets are driven by the desires and fears of humans, just like every other market. This is good for the savvy trader, because you can capitalize immensely by recognizing where the market is moving and acting accordingly. Here are tips for how best to capitalize during each of the 5 major cycles.
This is the ideal time to buy for investors. Price is cheap, and the surrounding buzz is generally low. Since this comes after the last phase in the cycle (markdown) there’s usually negative press because the cryptocurrency has “crashed” over the last few months. When in the accumulation phase, the goal is to buy for the long run if you’re investing. You’re buying from the people who failed to recognize markdown was happening and held their positions too long. Their loss is your gain.
The action starts to pick up here and the early majority jump on board. This was where Bitcoin stayed for the first nine months of 2017. It steadily gained momentum but always broke out above its price channel, steadily climbing higher and higher. Towards the end of markup is when the late majority gets in on the action and trading volume gets massive. Smart buyers who got in during accumulation are unloading to these latecomers. The mass amount of newcomers causes the cycle to jump to the next phase, where emotions rule the day.
3. Parabolic Upswing
After sustainable gains during the markup phase, the price starts shooting upwards in what’s called a parabolic upswing. It’s going almost straight up, and the saying holds true that what goes up must come down. The uninformed love to buy on parabolic upswings because they don’t want to miss the ride to the moon. The same people also tend to panic sell when the price inevitably comes crashing down. It’s almost impossible to recognize the top of the market, but the best advice for this phase is to stick to your plan and not trade based on emotion.
More commonly called a crash, this is the inevitable outcome of a parabolic upswing. This is a normal part of any market, not just crypto. Sellers dominate this stage of the market cycle. Negative emotions run high and the media stokes fear that the cryptocurrency is “dead” yet again. Hopefully, you aren’t holding on to a position from the parabolic upswing so you can safely ride this out to the next phase.
After the sharp pullback, the price trades lower and lower, with high volatility, over the course of several months. This is a great opportunity to actively trade if you know what you’re doing. The frequent valleys and peaks are a great opportunity for both swing and day trading. The tail end of this phase is when you want to buy again, as it’s starting the cycle again in the accumulation phase.
This cycle of boom and bust, rapid increase followed by an equally rapid fall, has happened six times over Bitcoin’s history. After every crash, the price has eventually risen higher than before and the cycle begins anew. Hoping the market will stay in any one phase will set you up for a rude awakening. While it’s very difficult to correctly guess when the market will turn, just know that it always will turn eventually.
If you’re new to the crypto market, it is important to get learn the basics of cryptocurrency trading before making your first trade. Check out this Beginner’s guide to cryptocurrency trading.