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Understanding the risks of negotiation on a lower market: a guide to invest in cryptocurrency
The cryptocurrency market is known for its volatility and unpredictability, especially on the lower markets. These periods are characterized by a decrease in the confidence of investors, a reduced commercial activity and lower prices. Consequently, many investors can be tempted to enter the market, to find yourself losing money or to face significant losses while the market continues to drop. However, it is essential to understand the risk of negotiations on a lower market before investing.
What is a lowering market?
A lowering market is a period of time when the overall value of a particular asset class decreases considerably. In the context of cryptocurrency, a lower market generally means that the price of a specific part or token has dropped at least 20% over a short period (for example, a month). This drop in price can be due to various factors, such as the increase in competition from established actors, regulatory challenges or a loss of investor confidence.
Risks of negotiations on a lowering market
Although investment in cryptocurrency during a lower market may seem to be a way to take advantage of the price drop, it is essential to understand the risks involved. Here are some key considerations:
- Increased risk : Trade during a lower market may be more risky than trade during a recovery. Indeed, investors who invest in a lower market are forced to buy assets at lower prices, which can cause significant losses if the market continues to drop.
- Liquidity crisis : The cryptocurrency market is traditionally known for its high liquidity, but during a lower market, this liquidity can be reduced or even disappear. This means that investors can find it more difficult to sell their assets quickly and at a favorable price.
- Regulatory uncertainty : Bear markets can create uncertainty among regulators, which can lead to changes in laws and regulations governing the cryptocurrency industry. This uncertainty can have a negative impact on the confidence of investors and affect commercial activity.
- Increased volatility : trading during a lower market can be even more volatile than trade during a recovery. Indeed, investors are obliged to take more risks due to their attempts to profit from prices, which can cause rapid losses if the market continues to decrease.
- Opportunity cost : During a lower market, investors may have to choose between different asset or investment classes. This means that they can lack potential opportunities on other markets or assets.
Types of bear markets
There are several types of lower markets that investors must be aware:
- Short -term bear market : a short -term bear market is characterized by a drop in prices over a relatively short period (for example, 1 to 3 months). Although this may be a good opportunity for investors to sell and make their profits, it is essential to understand the risks involved.
- Long -term bear market : a long -term bear market is characterized by a sustained drop in prices over an extended period (for example, several years, even decades). During this type of bear market, investors should be careful not to invest too much and may want to consider other asset classes.
How to protect yourself from risks
Although investment during a lower market can be more risky than trade during a takeover, there are measures that you can take to protect yourself:
- Do your research
: Before investing in cryptocurrency during a lower market, do your research and understand the risks involved.
- Diversify your portfolio : Repair your investments on different asset classes or markets to minimize risks.
- Define stop orders : Define the stop orders to limit potential losses if the market continues to drop.
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