We have seen this again and again with Bitcoin, following negativity and FUD in the media the price plunges and overextends to the downside. People get in fear mode and panic sell their so-called long term investment. However, this could be the perfect place to go long.
The everlasting downtrend
When price has been dropping for days and weeks without many retracements, it is human to fear that the price will drop down more and never recover. We want to sell out our position to relieve the pain and fear we are having.
However, from an investors point of view, this is the perfect place to enter the market, when price is overextended to the downside. This is how fortunes are made, going against the herd and the trend. So how do you time the entry?
Scaling in
My prefered method of entering a countertrend trade is scaling in. I divide the amount I want to invest into three or four equal parts or increments. When I see that price is overstretched I enter the market with one increment. Then if the price goes in my favour then good, I make a profit with lower risk. If price goes against me I enter the second increment of my investment. And so on untill I have a full position in the market.
Stop-loss
Before entering the trades I set a level I will not accept, that is where I will sell my position. This level is different for all three or four increments of my trade. This defines the risk I am willing to take on this investment.
Trading IS risky
I will also mention that trading IS risky. If you seek profits in the markets you need to take some risk to get them. That is the very nature of trading.
And this article is only ment to show how I trade the market, not to be financial advice to anybody else. People must themselves assess how they should invest in the markets. And the risk they are willing to take.
Happy trading!