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There is fear in the market, I always try to explain how I think and why I take certain decisions but I am always looking for the market sentiment and two factors that always have huge impact when deciding to invest.
An entry point is difficult to find so when we want to invest in any asset or stock, it is always best to invest in parts, take steps and use a strategy called dollar cost average that I've covered previously.
It is an easy approach since it doesn't require a huge investment at once, but it means we are accumulating with time. Let us say $100 per month in Bitcoin Cash this as an example.
We buy at any price with this method and this is why I don't use DCA but invest during dips and buy when fear reaches critical points.
With this article I will try to cover my approach on "Fear and Greed", two sentiments that make 90% of investors make bad decisions that cost them a lot.
In my title, the second part claims that we should be smart investors and as usual this is something we read a lot. Smart investors, smart money, and other funny phrases that we will always read and hear from some very popular crypto commentators.
Smart means nothing. I only wrote it in a sense to make a meaning of how you should approach the market, but not always, only at certain times.
Are you smart money if you doubled your initial investment in just a few months?
Who can say the opposite, huh? Everyone will be congratulating you.
A few months later though and you could have made ten times your investment. What are you then, are you again smart money and smart investor?
This is how often we read about smart and dumb money, from people that have no single idea what they are talking about. They claim smart money is buying, just to make others feel they are missing out on a huge opportunity.
There is a "smart" approach when selling and taking profit out of the investment. This is what the Dogecoin Millionaire didn't do, and now he is down by more than a million from the max he was making.
Emotions that play with our decisions and while greed can bring some results during times of extreme fear the results are usually bad.
Extreme fear can be translated as a time when everything is crashing and investors are selling at any price even at a loss, trying to get out of an asset that is collapsing.
Why, though? This is just common human behaviour of two things combined:
Fear primal instincts, the instinct that warns us of a possible danger
Panic of the herd. Herd behaviour in humans. We subjucate our individual will and follow the many.
There are fear and greed indicators like the one I published, but they take some metrics without considering some facts. Usually this indicator will claim there is extreme fear after each price dip but this is not even close to what extreme fear represents. What we have today is only modest fear perhaps the indicator should be at 50/100 mark and not 22.
Careful since some tools like this one are not reliable at all. When there is fear you will read it coming from real investors. You know when there was the top fear for the crypto market? When in 2019 a major Bitcoin bull, Novogratz, said that with the prices of Bitcoin dropping so much in 2019 there is almost no room to find new investors and keep Galaxy operations running.
This is extreme fear, when the whales are in fear and consider selling and getting out of the market.
Extreme greed is also obvious, we sell when there are discussions in communities and chatrooms where nobody ever before discussed crypto. This is when we are getting ready and begin selling. When you see any irrelevant to cryptocurrency suddenly discussing it, this is a hell of a red flag.
Greed is stupid money. This is verifiable easily. Those guys that have the money and just driven by the ambition of making extreme returns very fast. Usually greed is feeding upon posts and comments we read on twitter and phrases like have fun staying poor, that multiply when the price is reaching critical level. Looking at bitcoin tweet numbers this gives us an indication since sudden rise in numbers indicate artificial discussions and comments by bots.
Someone paid for bots to talk about crypto and trying to pump the prices to sell to those that get trapped in this. It is the top since this is not just a simple small group of investors but the big players.
To summarize, when we spot extreme fear this is a buying opportunity. Maybe increasing our investment during fear will maximize our future ROI. We sell, using the reverse of DCA. Never sell 100% of any investment at once. There are some methods we can use to have good terms with all price action that can follow.
It is equally greedy to just sell everything after doubling up and not wait for your investment to mature. Unless there is some sign that the investment was just in pump and dump mode and there is nothing fundamentally important that gives a hint of potential for future price increase and rise in demand.
Hodl is a stupid practice and it was a message that was increasingly discussed as prices rising. When prices drop down 50% and someone says hodl he is usually met with negative comments.
Imagine having 10x'ed your investment and still hodl everything without any profit taken. We invest to profit, take some money out and buy some things that will make our living better. If you blindly hodl you will not profit as much as you should.
The higher the prices the more the risk grows, and timing our strategy is also very important. When investments are programmed and we follow risk management without major errors made, then even bad investments will not harm our total portfolio.