Summary:
- The “buy low sell high” strategy is easy to understand, but extremely difficult to implement.
- This is because trading profitably has more to do with mastering one’s emotions and sticking to a plan.
- Effective strategies to help a trader buy crypto low and sell high include acting decisively based on a plan, researching market cycles, price histories and DCAing.
The “buy low, sell high” strategy is the foremost rule in trading and investing. We buy an asset when the price is low, and sell the asset when the value is higher in order to make a profit. For some, “selling high” means selling at a 10% return, while for others it means selling at a 1000% return. In either case, investors aim to sell higher than their initial investment.
Can you “Buy Low Sell High” In Crypto?
The crypto buy low sell high strategy involves buying Bitcoin or an altcoin at a low price and selling it at a high price. For example, when we buy Bitcoin at $20,000, and sell when it’s at $60,000, we bought low and sold high.
The obvious caveat here is that this strategy is based on market timing. If we can predict when prices are low based on market cycles (bullish vs bearish), we can strategically buy during the bear market and sell during the bull market. In crypto cycles, the bear market and bull market often switch every two years.
A short-term strategy can also yield profits, by buying when prices dip during the day and selling when prices peak. This is called “day trading”. Using indicators such as the RSI indicator, we can identify when prices hit support levels during the day and sell when they hit resistance.
The buy high sell low meme is one of the most well-known memes in the crypto community, for the same reason a joke is really funny – there is much truth to it. Despite knowing the obvious in theory, many traders do the opposite – they buy high and sell low.
The irony of buying low and selling high (Source: 9gag.com)
Why Do Traders Do The Opposite of “Buy Low Sell High?”
You’re chuckling because you have experienced this – you aim to buy low sell high, but you keep ending up buying high and selling low. This has to do more with trader psychology more than anything else.
A trader will “sell low buy high” if he does any of the following:
- FOMO. Crypto can appreciate fast and cause the fear of missing out. The fear & greed barometer switches to extreme greed, and this makes investors act irrationally. For example, when you see the price of a coin shooting up, you buy in – at a high – only to watch in dismay as it comes back down just as you bought it. A good rule of thumb: only buy when price is 50% down from all-time high.
- Holding out. On the other end of FOMO is the act of holding out. Without a plan to follow (i.e. buying or selling at a specific price corresponding to historic support and resistance levels), emotions take over when volatility is high. The trader without a plan will keep waiting for prices to fall even lower before buying, only to watch as prices rebound. Then they will be forced to buy high as the FOMO monster kicks in. For example, Bitcoin recently crashed to $18,000 and recovered to $24,000 within weeks. Note: The same applies for selling high. When a trader gets greedy and waits for prices to go even higher than his original expectations, he will tend to panic-sell as prices start falling, and reap lower profits than they would have gained if they had stuck to the plan.
- Not doing proper research. Traders who buy altcoins just because it’s pumping are at risk of losing everything if the coin goes to zero and never recovers. The golden rule in investing, “never buy something you do not understand” rings truer in crypto than anywhere else. If you do not know the price history of a coin, there is a high chance you will end up buying when it’s high – because this is when everyone is talking about it, and you get into that FOMO mood again. Proper research (DYOR) cannot remove all risks in crypto investing but it can significantly shield you from unnecessary losses.
How To Buy Low And Sell High Crypto?
Time the Cycle
Buying crypto low comes down to timing the market when prices have depreciated. We can do this by comparing the market cycles.
The consensus in crypto is that there are 4-year market cycles, due to the Bitcoin halvings that increase difficulty. During those 4 years, we can have a 3-year bear market and a 1-year bull market or vice versa.
The way to time the market effectively is to compare the prices with historic prices. At the time of writing, Bitcoin is trading at $24,000 which is nearly 3x down from the peak at $69,000. Macro factors aside, we can assume that we’re currently in a bear market and prices are down significantly.
If a trader wanted to buy low, it is the perfect opportunity since prices are unlikely to drop further. Historically, Bitcoin has stabilized at 50% of the previous peak during a bear market which means we can expect it to stabilize in the $30,000 range during the present cycle.
If we’re buying altcoins, we must research the price history. Altcoins are high-risk and high-reward coins that can provide significantly higher returns. However, if they depreciate during the bear market there is no guarantee they will recover.
Check the price-performance of altcoins on aggregators such as CoinMarketCap – if the coin has survived multiple bear cycles (such as ETH), chances are it will come back stronger in the next bull run.
Act Fast When Buying/Selling
Real dip opportunities in crypto won’t last. If there is a flash-crash and prices collapse, this is the ultimate opportunity to maximize returns on the next peak.
During the Covid crash of 2020, Bitcoin crashed from $10,000 to $5,000 – representing a once-in-a-lifetime buying opportunity. Investors who acted on the dip and didn’t wait to buy maximized their returns within a year with easily 200% to 300% gains.
If we wait until prices crash further, we could miss out, making us FOMO at a higher price. Likewise, when we’re selling, we should sell while we’re in profit without waiting for the price to peak out above certain levels. Greedy decisions of this kind can make us delay our actions.
DCA into the Bear Market
Dollar-Cost-Averaging means buying at regular intervals regardless of the price. If we buy Bitcoin high without going all in at once, this means we will still have cash left to buy lower dips, thus evening out our cost of buying. This way, we’ll likely end up profitable when we sell later on.
For example, if we allocate $1,000 to buying Bitcoin every month, one month we’ll be buying at $60,000, another at $40,000, and the next at $30,000. This would even our average to about $40,000 and we wouldn’t be at a loss; thus we’d stand a better change at making a profit once Bitcoin reaches an all-time high.
DCAing into the bear market is one of the most effective ways to make returns during the next bull run.
HODL for the Long-Term
HODL is the crypto community term for “Holding” and is one of the most effective strategies for long-term investing. The easiest way to sell high buy low crypto is to hold it over multiple years. In some cases, it doesn’t matter if we buy high as long as we hold the crypto over multiple years. Investors who bought high at $1,000 in 2013 made a significant profit after holding for 4 years when Bitcoin hit $20,000 in 2017. HODLing is the most effective strategy for generating ROI long term – especially for blue-chip crypto assets such as Bitcoin and Ethereum.
Conclusion
A trader in the crypto industry has multiple options to buy low and sell high – cycle research, DCAing, or plain holding through the years. Knowing when and how to buy and sell is what separates an amateur from a professional in trading.
If you need help getting started, read our spot trading and futures trading guides. These guides will help you learn the technical details of buying and selling and get you acquainted with the whole process.
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