Catching A Falling Knife While Trading Cryptocurrency? These 3 Tips Might Help You

Crypto trading is a speculative game. Nobody goes into a trade in anticipation of making losses. In short, everyone wants to make profit, all of the time. But this is merely an illusion, which experienced crypto traders would attest to. There would come a time in your trading career that not only would losses come your way but you might find yourself catching a falling knife. This brings us to the very essence of this article ─ things you could do if you find yourself catching a falling knife while trading crypto.

What Is A Falling Knife Scenario In Crypto Trading?

At the very basic level, a falling knife scenario occurs when you find yourself entrapped in buying a coin whose price is on a downward spiral. The trap begins when your stop loss, if you set one, triggers and then you buy again believing that the coin has bottomed out. Unfortunately, your stop loss triggers again and again. Frustrated, you buy some more and the circle repeats again and again. In that case, you are already catching a falling knife, the nightmare of any crypto trader.

To understand the scenario better, let’s take this example. John buys XYZ at $10 per coin. By the next day, XYZ plummets to $6. John thinks that the bottom is in. He buys again at $6. He wakes up again on the next day and finds XYZ at $3. John liquidates his position, counting his losses. He has felt the horror of catching a falling knife.

So what can you possibly do if you find yourself in the shoes of John?

1. Calm Yourself Down and Ask Yourself Some Important Questions

Although like John in the example above, you are in a messy situation. Don’t allow your emotions to becloud your reasoning. Ask yourself some basic questions. What is the cause of the dump? Do you really believe in the future of the dumping coin or you are merely taking a wild gamble? Are your beliefs supported by sound fundamentals? If your answer is yes, then the next tips might help you.

2. Be Strategic, Not Impulsive, With Your Buying

There is no such thing as a dead coin provided such coin is listed on reputable crypto exchanges. So, if you find yourself catching a falling knife, it might be wise that you engage in strategic buying. You could decide, for instance, to buy more of the crashing coin each time it plunges 30%. This way you engage in sound dollar cost averaging and get a chance to buy close to the bottom.

3. Be Patient

It is better to avoid catching a falling knife but if you find yourself catching one, then you will have to be very patient. While I cannot guarantee for how long you will have to wait, always have it on the back of your mind that there are scavengers all over the cryptospace mission is to buy undervalued coins. Soon, money will begin to flow back into the seemingly dead coin and it will rise again.

For example, the seemingly dead CRV coin made massive gains recently, surging above $2 from a below of 30 cents some months ago. I know a few traders who lost huge amount of money trying to catch a falling knife while trading CRV. Patience would have solved the problem by now.

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