No need to panic about Cryptocurrencies yet!
Many of the major cryptocurrencies have traded sharply lower over the past couple days, so some people might be worried that this is the end to the rally. Luckily, There is no need to panic! :) (yet). I'm going to use this blog post to tell y'all about the current market situation, and how I approach the market when cryptocurrencies are volatile.
Ethereum fell from nearly $840 to under $700 in just over 24 hours of trading between May 6th and 7th. The collapse was rapid and on very high volume. Just by looking at the chart an average person might think this is the end of the rally, and the market is heading much lower.
The first rule that you should always follow while trading cryptocurrency is to never panic.
Panicking will almost certainly lead to poor decisions either on the buy side, because you don't want to miss out on the gains, or the sell side by selling at the bottom.
Although the chart you are looking at is telling one narrative, it is important to look at multiple charts to get a broader perspective on the situation. In order to feel comfortable making a trading decision, the trade should look good on every chart you view.
Think about trading like a research paper. If you only include one source, it will be biased and not capture the whole story. However, if you include many sources and perspective, it is comprehensive and more successful research.
If you just zoom out to a longer time frame it is easy to tell that significant pullbacks have occurred during the entire rally.
Ethereum also bounced off of major longer term support level! :)
Finally, when Ethereum sold off its RSI indicator dropped to one of the lowest levels in months. The RSI indicator is a great tool to determine if a security is overbought or oversold! When the RSI Indicator drops really low, it generally means that the security has gone down too far and will bounce back up.
3 out of the 4 charts/ indicators were positive! If someone had made the mistake of just looking at the one chart, they would be completely wrong. It is better to wait until you are 100% confident in the trade from every angle, than to make a trade with uncertainty.
Since that decline a couple days ago, Ethereum, and much of the market, has formed an equilibrium pattern. At this point it is better to wait for a break of the pattern before deciding whether to enter the trade. I would much rather take the confident trades than chase a few extra $'s in a 50/50 call and lose big. If Ethereum goes through the upper resistance level, it could go significantly higher; however, if Ethereum breaks through the lower support level, it could go much lower. This is the exact reason why I am holding almost all cash right now. I want to be very certain in a trade before I commit to it.
Thank you so much for reading!
Disclosure: I am long Steem