The Crypto-market is still in its infancy compared to traditional markets. Therefore, it experiences marked volatility due to online trends, global pandemics, investor confidence, and a host of other factors. But it also provides a huge possibility for gains. It has an unprecedented financial appeal because of its ability to yield chunky returns. The more you understand the nuances that govern its moods, the more you’ll be better placed to climb its levels. From investor attention to momentum patterns, there’s a lot that contributes to its sudden shifts.
Timing plays a huge role in whether you’ll win or lose big in the crypto world. You can use this buying bitcoin guide on Crypto Head to make an educated guess or bank on the expert advice below.
Best Time To Buy Cryptocurrency
1. When the Momentum Effect is Strong
According to a report by Yale researchers, if the price of bitcoin follows a sharp upward trend over a week, it’s likely to stay on that track in the following week. This is called the “momentum effect” and its premise is simple: if prices increase they continue to increase on average and if they decrease they continue their descent. This theory has been corroborated in a variety of traditional assets like bonds, stocks, and currencies, at least in the short-term.
So, the best time to buy cryptocurrency would be when there is a marked increase in prices — 15 to 20% as a general estimator. If you stay true to this strategy, you’re likely to make an 11% return on your investment.
It’s important to note that the momentum effect is strongest for Bitcoin. XRP and ether, though not as affected, are still governed significantly by its variables.
2. When There Is Global Instability
Cryptocurrency can be extremely profitable during crises like the current coronavirus pandemic. It experiences sharp jumps in circumstances like these. That’s why Bitcoin’s price currently stands at $8,607.01, a >50% increase from its pre-pandemic numbers.
This is because cryptocurrencies are considered a safe haven in times of uncertainty. Their ability to withstand market volatility and uncertainty is a lot better than traditional currencies. Countries like Venezuela and Argentina that are facing economic difficulties have turned their attention to cryptocurrency for this very reason.
So, when the economic chips are falling, that’s exactly when you hedge your bets in favor of cryptocurrency.
3. When Positive Investor Attention is high
A surge in online Bitcoin activity is a huge indicator cryptocurrency price will increase. This is called the “investor attention effect”. When the buzz around cryptocurrency investment increases on platforms like Google, Twitter, and Facebook, it’s time to buy-in.
According to statistical analysis, a single standard deviation increase on a twitter post count for the term “bitcoin” results in a 2.5% increase in bitcoin returns in the following week. Such statistical analyses can help you forecast short-term market performance and invest accordingly.
4. When The Price Drops
Since Bitcoin is highly volatile, it’s understood that its prices will fall at some point.
“Buying the dip” strategy urges you to capitalize on these drop points. If the prices are low today, there’s a high chance they are going to appreciate in the coming weeks or months. It might seem counterintuitive to invest in a depreciating market, but considering the uncertainty of Bitcoin, it’s actually a very smart play.
This move works great in a stagnant or bull market where the usual trajectory is upwards or sideways rather than downwards (bear market).
To deploy this strategy, you will have to analyze charts, movement fluctuations, laddering buys, and past support trends.
The investors can either go for big dips or small dips. Big dips happen when prices fall below average and small dips when they fall from their previous position.
Bottom–line: Buy when the prices are low to minimize your risks.
Best Time to Sell Cryptocurrency
1. When Negative Investor Attention is high
Negative investor attention is a signal to pull out of the market. Specifically, increased online activity relating to terms having negative connotations like “bitcoin hack” herald a short-term downturn. Check for tweets, and google analytics data to gauge these trends. They are an indicator that investor confidence is low, and the market is headed to a downwards spiral.
2. When there is An Upturn in Crypto Prices
Warren Buffet advises people to buy when the market is dipping and sell when the market is returning to its former glory. It’s a classic rope-a-dope game.
An upturn is usually an indicator of a correction that brings about a significant dip in values. This is understandable since investors scramble to sell their appreciated assets as cryptocurrency prices soar to cash in on their profits.
So, it’s important to sell when prices are jumping to make sure considerable profit is made on the initial investment.
However, sometimes it’s also advisable to be patient and keep your holdings since there’s no way to be sure about market peaks. This holding strategy sometimes proves pivotal in helping you score an even bigger payday.
3. When The Momentum Effect Is Weak
When the momentum effect is weak, meaning bitcoin prices continue to nosedive, it’s likely this trend will continue in the short run. If making a profit in the immediate future is your goal, then a sharp drop in prices is your cue to sell.
However, if this profit isn’t your immediate concern, you can hold off on cashing out and wait for the market to stabilize. You never know it might reach newer heights once it’s recovered. In the end, this decision depends on your financial goals, risk-tolerance, and temperament.
There are a lot of strategies and trends you can follow to make your cryptocurrency investment a safe bet. However, it’s also important to assess your tolerance to risk and personal debt before making any sudden jumps. If you have that out of the way, these aforementioned strategies are best in the business to get you up and moving in the crypto-world.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.