When the crypto market is bullish, it is easy for almost anyone to make a profit. But some traders generate significant profits even when the market trends are bearish. It is dramatic moves and sudden unexpected behaviors that cause liquidation cascades and crashes in the lending crypto market. However, when it comes to the collateral liquidation markets, such moves create unique and big buying opportunities as well.
Why are Crashes and Liquidations Investment Opportunities?
When a token's price declines below its average price, crypto market crashes occur and cause amateur and newbie investors to panic and sell the assets that they have had for a long time. This behavior causes liquidations and further lowering of the costs. The reason why investors resort to panic selling is to make at least some profit before the price of the cryptocurrency goes down further and below the price that they made their initial investment on.
Here are a few steps that professional crypto market traders take in order to capitalize on market liquidations and crashes:
They Conduct Extensive Cryptocurrency Research
A declining price of a cryptocurrency usually makes investors want to buy its tokens, and it does seem like the right time to do so, does it not? However, that should not be the only factor to consider, and an investor should perform due diligence before making an investment. One thing to look for is the previous performance of the token to understand whether or not it has the ability to rise again. It is true that most cryptos do bounce back after crashes, but that alone should not make you blindly place your bets on it.
Professional traders that are able to capitalize on crypto market liquidations and crashes read the history of the coin to look for similar situations. If the crypto has come back out of those situations in a strong manner, they go forward with the investment. Another thing that such traders make sure of is to invest only in cryptos that they deeply understand and can hold on to for a long time. Purchasing a currency with an aim to make small profits and short-term holding is usually not their thing.
Loss-bearing coins with a past record of outperforming liquidation are also a popular option among such investors. The key is to conduct research in order to identify the most elementary investment with the ability to offer you big profits after the market crash and liquidation end.
They Figure Out a Cryptocurrency’s Potential
It is true that determining the potential of a cryptocurrency to rise back strongly after liquidation is a challenging task. Traders want to have conclusive evidence, stronger than just the historical performance and charts, before placing their investments. For this purpose, crypto market trading experts look at a few other components, including the blockchain network the cryptocurrency represents and its potential and use cases, as well. The cryptos that have good use cases have the ability to easily survive liquidations and crashes.
The importance of use cases, along with extremely loyal and huge following and demand, indicates the strong survival potential of crypto. For instance, there are multiple use cases, such as smart contracts and DApps, that Ethereum represents. It is also an enterprise blockchain and hosts several other blockchain networks as well. Similarly, Bitcoin is extremely popular and enjoys high demand and the largest crypto market capitalization since its inception. For these reasons, you can be sure that BTC and Ethereum are equipped with the potential to overcome liquidations and crashes of all intensities.
They Devise and Follow a Trading Strategy
Crypto trading requires you to be persistent and determined. Successful crypto traders understand that the cryptocurrency market is a highly volatile trading place that can swing in all directions. The key is to stick to your investment decisions, or you might end up without any profits. Expert traders create trading strategies that have clearly laid out guidelines to help them enter and exit any trade. There are several different strategies out there that traders employ, but the key to creating a winning strategy is market research and alignment with your specific trading goals.
Creating a strategy is one thing, and sticking to it is another. When the crypto market fluctuates or crashes, traders get really strong gut feelings telling them to deviate from their strategies. And while gut feelings can sometimes bear fruits for you, staying true to your strategy can be more beneficial in the long run.
Regular investment guidelines, as well as a budget, are parts of the strategies that expert traders create. They use only the amount that they can afford to keep in the trade as going over the budget can cause one to exit at the wrong time with losses in their hands. Another benefit of it is that it allows investments at regular intervals and discourages putting in all the money at once. Averaging investments enhance the chances of profits and mitigate the chances of heavy losses.
They Create a Balanced Portfolio
Fluctuations within the global crypto market occur due to several different factors, such as popularity, liquidation, use cases, demand, etc., unlike national stocks. For this reason, professional and successful traders that capitalize on market liquidations and crashes always create a balanced portfolio and invest in several different coins.
This means that even if a cryptocurrency has a history of performing well, it does not mean that it is sure to continue doing so in the future as well. Crypto market crashes and liquidations are like swords that are double-edged and require a balanced portfolio to lower the chances of losses.
The crypto market can change hundreds of dollars in a single day and has the ability to cost traders their fortunes. With that said, cryptocurrency market liquidations and crashes are opportunities for making big profits as well. The charts indicate that most cryptocurrencies arise even more strongly for a better future after crashes. Expert crypto traders use the above-mentioned trading strategies to seize the right opportunity as soon as they see liquidations and crashes in the crypto market.