While the precise metrics of a ‘correction’ varies, market slides of 10-20% are often publicized as a correction. Hopes are then price dips will not usher in a sustained bear market.
Many crypto holders still await prices to rise in 2022 as the first several weeks of the new year have led to deflated markets. Major coins like Bitcoin and Ethereum slid by at least 10% in January 2021. On the 21st of the month, the total crypto market cap plummeted by $205 billion within just 24 hours.
While numbers in mid-February 2022 are looking somewhat better – with Bitcoin up by about 33% from January 24th to February 14th, many investors are still bracing for additional corrective action.
Concerns are as the Federal Reserve signals interest rate hikes, more ‘risky’ assets like crypto will undergo continued bearish markets. In mid-February, JP Morgan analysts estimated Bitcoin’s value at around $38,000 based on volatility in relation to gold. The flagship crypto’s price hovered around $44,000 on February 15th.
However, some remain optimistic amid crypto corrections as they perceive an opportunity to buy coins ‘on sale’ to hold for potential future price surges.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett
Crypto Trading Bots Remain Popular Tools During Market Corrections
No matter the perspective, many wonder how they can best navigate crypto corrections, trade effectively, and understand when opportunities might arise to buy during price slides and collect future profits.
One of the most common strategies for traders during market corrections is to turn to automatic trading bots. Immense price volatility can lead to heightened emotions and cause traders to make decisions they might regret later.
Bots take the emotional aspects out of trading by executing transactions automatically based on logic and programming.
They can also react much faster to quick price changes and work 24/7, something a human crypto trader is unable to do. Some of the most popular crypto bots are arbitrage bots that examine prices among different exchanges and execute trades as discrepancies are found.
For those who feel tools like automatic trading bots are too sophisticated for trading purposes, reverting back to well-known trade strategies are other ways to weather the storm during a crypto crash.
Well-Known ‘Traditional’ Trade Strategies Also Hold Up During Crypto Market Slides
Reversion strategy is a trading approach that assumes the price of an asset will return to its mean value after a specific point of time.
The idea is prices above the mean are expensive, while ones below are cheap, opening up opportunities to buy during a market slide to hold for later profit. However, traders need to understand it can be impossible to project when prices might move up and down. Enough volatility with the crypto asset is also needed to account for costs like trading fees or slippage.
More longer-term traders often turn towards dollar-cost averaging (DCA) in times of crypto market corrections. DCA investors take a total sum of funds and invest incrementally over time to capitalize on market corrections without risking too much of their money. If prices keep moving down, DCA investors stand to profit if the asset jumps back up.
Investors relying on the DCA strategy need to be patient and comfortable with buying during massive market sell-offs, and even within bear markets. They also need to be aware they will incur more trading costs by making a series of consistent, smaller transactions. Overall, DCA is a common strategy during crypto market corrections as it mitigates investor risks while still opening up the possibility for profit during upward market swings.
Confidence And Research Into Any Crypto Asset Is Needed During Crypto Corrections
Any crypto trade strategy requires an amount of faith by the investor in the underlying asset.
Since there is no guarantee the price of a particular coin will rise, investors who successfully ride out market corrections usually have done enough research into their assets to trust the underlying principles and vision of a project to remain resolute, or consequently, know when to cut their losses and get out of a coin.
Crypto market corrections are a reality within the hyper-volatile digital asset world, but relying on trading strategies and tools can help any investor stay afloat no matter the circumstances.
