Understanding The Risks Of Trading In A Bull Market
Understanding the risks of negotiation on a bull market: an extinguished tale for cryptocurrency investors
The cryptocurrency world has increased exponentially in the last decade, with arrow prices and falling at an incredible pace. Consequently, many investors have become enthusiastic about the elaboration of cryptocurrencies, often without fully understanding the risks involved. While some traders can collect huge rewards of their investments, others risk significant losses in the process.
What is a bull market?
A bullish market is a period of time when the price of a cryptocurrency increases over an extended period, generally several months or years. Meanwhile, investors often sell their parts and take advantage, only to see the higher prices. This can lead to significant gains for those who have invested early, but also have risks for those who enter too late.
Why is trade in a bull market risked?
Trade on a bull market is intrinsically risky due to the following factors:
- Volatility : The markets of cryptocurrencies are notoriously volatile, the prices fluctuating quickly and in an unpredictable manner.
- Lack of regulation : The cryptocurrency space lacks effective regulation, which makes it difficult for investors to predict price movements or understand potential risks.
- Speculative nature : Commercial cryptocurrencies are often done on the basis of speculation rather than a fundamental analysis. This means that traders are motivated by emotions, such as fear and greed, which can lead to impulsive decisions.
- MARKET OF THE MARKET : Some market players can engage in handling practices, such as pump and turnover or price manipulation patterns, which can affect the overall market dynamics.
Risk categories
The risks associated with the negotiation of cryptocurrencies are classified into several types:
- Price risk : The risk that the price of a cryptocurrency decreases considerably due to market fluctuations.
- Risk of time disintegration : the risk that the value of a cryptocurrency decreases over time with the approach of its intrinsic value (that is to say its fundamental value).
- Risk of the market
: The risk that the global market of the cryptocurrency market is undergoing significant losses, affecting the portfolios of individual investors.
Example: Bitcoin – A perfect risk storm
The recent Bull Run in Bitcoin is nothing less than spectacular, prices soaring from about $ 10,000 to more than $ 60,000 in a few months. However, this price explosion is not without risks:
* Price volatility : The price of bitcoin has fluctuated wildly since the start of Bull Run 2017, causing significant losses for investors who sold at the top.
* Liquidity risk : The growing popularity of Bitcoin and other cryptocurrencies has resulted in a decrease in liquidity, which makes it more difficult to buy or sell parts if necessary.
* MARKING OF THE MARKET : Some market players have engaged in handling practices, such as pump and delight patterns, which can affect the global dynamics of the market.
Conclusion
Trade on a bull market is not without risks. While some investors can collect huge rewards of their investments, others risk significant losses due to volatility, speculation and market manipulation. It is essential for cryptocurrency investors to approach trading with caution, to understand the risks involved and to set realistic expectations.
To alleviate these risks, it is crucial to:
* Perform in-depth research : Before investing in cryptocurrencies, do in-depth research on the fundamental principles of assets, technical analysis and market trends.
* Define stop-loss orders
: Define the stop orders to limit potential losses if the price of a cryptocurrency decreases considerably.
* Diversify portfolios : Distribute investments over several assets to reduce risk and increase potential yields.