The crypto market is in full fledged fear for the longest phase in more than a year, coinciding with a massive Bitcoin drop of more than 50%.
The once trending cryptocurrency has yet to recover, leaving the market and participants in a state of extreme fear. But past data shows, fear is often a good thing for Bitcoin, and helps the asset find support and at least a short term bottom.
Fear is one hell of an emotion and can make even so-called ‘diamond hand’ Bitcoin holders panic sell. No emotion comes close to driving humans toward acting irrationally more so than fear, other than greed.
Greed can be even worse, blinding investors and traders to what’s going on around them. When money is easy, it is difficult to click that sell button and secure profit knowing that prices could rage on much higher.
Related Reading | Bitcoin Bulls And Bears Alike Beware Of Potential Pump And Dump Fractal
The two emotions are almost never in balance when it comes to markets, which makes changes from one extreme to another especially notable.
Several investing legends have made their names and built their reputations based on contrarian positions, and there’s a reason for it that couldn’t be any more obvious than comparing the crypto market Fear and Greed Index with Bitcoin price action.
Fear and green correlates well with tops and bottoms | Source: BTCUSD on TradingView.com
Be fearful when others are greedy and greedy when others are fearful. Buy the blood in the streets. All of these famous finance quotes directly reference contrarian trading. Why then, can’t anyone simply just control their emotions, and buy when things get scary and sell when others are screaming on social media about their gains?
The crypto market Fear and Greed Index compared with Bitcoin price action shows just how this ‘one simple trick’ actually works and can make you rich. Yet it is still extremely difficult to pull off.
Related Reading | Five Signs That The Bitcoin Bottom Is In
The fact is, no one knows at the moment, and although it looks obvious in hindsight, things could truly go either way. What being greedy while others are fearful and being fearful when others are greedy does, is improve the chances of success.
Markets reverse when things are at their best or worst, and always when participants least expect it. By learning to alter your thinking, traders can also learn to control these two critical emotions. This is also why in technical analysis, sticking to the strategy is most important.
By doing so, even if emotions arise, there’s a plan to fall back to and reasoning to back up why you took the position in the first place: because fear sometimes equals bottoms in Bitcoin.
Featured image from iStockPhoto, Charts from TradingView.com
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