You know to buy the dip and sell high, right? However, this sounds easy said than done. If you had happened to have purchased a certain cryptocurrency when it was high, even the slightest drop in price appears scary. Though you have all the reasons to worry about your investment, crypto downtrends also signify significant trading opportunities. This article discusses what a crypto downtrend is and their importance.
What is a Crypto Downtrend?
A crypto downtrend is the general price decline of a coin. It is important to note that it is normal for any financial market to fluctuate between slightly higher and lower prices. Lower lows and lower highs also define a downtrend. When you see a downtrend on a graph, the general price movement is on a decline mode. It is essential to watch out for crypto downtrends since, without significant changes, your investment may not bring any substantial gains.
Each downtrend comprises multiple fluctuations. Upon careful observation, you will realize this pattern resembles a wave. Because of this observation, we will refer to their changes as price waves from here henceforth.
A downtrend comprises two types of price waves: impulse and correction. An impulse wave is typically bigger, characterized by a major price decline. After observing this significant price drop, it is not abnormal for the price to rise slightly, creating a corrective wave. Since an impulse wave is bigger than the corrective wave, the price of your investment will still be less than what you began with. This signifies the start of a downtrend.
The Major Crypto Downtrends of the Past
Crypto downtrends are not always as scary as people opine. In fact, they are totally normal. Even the first and biggest cryptocurrency in market capitalization has experienced some major downtrends in its life. For example, in 2018, Bitcoin faced six consecutive months of lower and lower prices. Upon keen scrutiny, you may realize that the whole of 2018 was a bad year for the entire crypto market. During this period, Bitcoin lost 75% of its value, once having a market capitalization of more than $480 billion and experiencing a low of $120 billion towards the end of the year.
Ethereum also went through a similar encounter experiencing seven consecutive months. At the end of 2018, its closing price was actually lower than the opening price.
A Word to the Wise
Do not allow crypto downtrends to put you off from day trading. For crypto newbies, these patterns become more and more predictable with time. As you pick up on these patterns, a Bitcoin trading cheat sheet might be a handy tool to keep in your back pocket!
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