Last week Tim Draper in the interview said that he made his prediction that bitcoin would hit $250,000 by 2022.
And there’s a big question that’s been on the mind of everyone interested in cryptocurrencies — “When is the best time to buy bitcoin?”
Everyone knows “buy low, sell high”, but most people do the exact opposite due to human emotion.
For example, in 2013 I wrote a blog post warning people about the bubble when bitcoin went from $100 to over $1,100 in a few weeks…
But many people still ended up chasing the bubble due to FOMO (fear of missing out), then panic sold when price crashed by over 80% during the next year.
So, my goal in this post is to give you a couple of tips to help you get prepared for the next bull market in bitcoin…
1. Create a plan and set aside “risk capital” for crypto trading and investing
“Scared money always loses.”
If you’re trying to trade or invest with money you need to pay bills, then you won’t be able to make wise decisions. The fear of losing will cause you make mistakes like over-trading, closing good trades too soon, or forcing low-probability setups because you need to make money.
Over the past year, there have been many stories of people taking massive risks to buy bitcoin and other cryptocurrencies. People have mortgaged their homes, taken out credit card loans, and one family even sold everything they owned to buy bitcoin.
As Mark Douglas explains in Trading In The Zone, a smart trader needs to truly accept the risk on a trade so they can make emotionless decisions about when to enter and exit the trade.
It is probably wise to sit down with your financial advisor and decide what (if any) capital you could allocate towards higher risk markets like cryptocurrencies.
From there, you could decide how much capital you want to allocate for long-term investments and short-term trading.
2. Learn how to read emotion in price charts
“Be fearful when others are greedy and greedy when others are fearful.” — Warren Buffett
Market prices are driven by human emotions like fear and greed.
People that make decisions based on their emotions often lose their capital to savvy traders and investors that understand human emotion and take the other side of the trade.
Technical analysis is the “fun” part of trading. It’s exciting to look at a chart with a bunch of fancy indicators and try to anticipate what the price of a market will do next.
Unfortunately, most people look at technical analysis all wrong. A big mistake new traders make is trying to find a system, setup, or indicator that will predict what the market will do with 100% accuracy.
In Fooled By Randomness, Nassim Taleb explains how people will see patterns when the reality is that it’s just random price action. Many people don’t know how to test if what they’re seeing is truly a high-probability scenario or just random price action that looks pretty in hindsight.
But savvy traders understand that technical analysis is all about seeing the “path of least resistance”, and the more emotion (volatility) is present in the market, the more reliable technical analysis can be.
It’s no secret that cryptocurrencies have been the most volatile markets on the planet the past few years.
I love to think like a contrarian and buy when everyone is panicking, then sell when everyone is being greedy.
3. How I hunt for good buying opportunities
Instead of trying to guess when I think bitcoin is going to start moving, I like to use a combination of technical analysis, fundamental anaylsis, and market sentiment analysis.
In other words, I want to use charts, economic data, and get a sense for how the mass majority of people are feeling about the price.
#1 — When the media is trashing bitcoin
High bitcoin price = media pumps crypto. Low bitcoin price = media trashes crypto. Rinse and repeat.
One of the worst times I’ve found to buy bitcoin is when every major news network is publishing stories about how people are becoming millionaires by investing in bitcoin.
I call this the “CNBC indicator”…
Because when major news outlets are bullish on bitcoin, that usually means a crash is around the corner.
But the opposite is also true…
When journalists are writing stories calling for the death of bitcoin, that can mean a bull trend is near.
#2 — When an early bull trend is developing on the chart
After price action panics and stabilizes, I like to wait for early signs of a trend.
You never know how far a bull market will go, and instead of trying to pick tops, I prefer to hunt for cheap markets that show signs of healthy growth.
We can see that clearly on a chart by using Fibonacci retracements and extensions, increasing trading volume, and a shift in market structure.
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