Volatility in the crypto markets: A fundamental piece
The less volatile the market, the more cautious you have to be, 'cause although many people who trade in the crypto markets seem to believe that everything is going down the drain because Bitcoin is still in a downtrend in the midst of a bumpy 2022; The issue that very few people consider is the issue of general volatility, and the profit factor.
Volatility is seen as a bad thing
All of us in the crypto world already know that cryptocurrencies are extremely volatile, right? and if you don't know that it is so, you should know. Volatility is extremely misunderstood these days; and in a few words it is nothing more than the ability of the price of an asset to rise or fall in large proportions in a short period of time.
It is because of this characteristic that volatility in the markets (and especially in the crypto market) is widely misunderstood and even feared. But it is a logical and natural consequence, because people fear what they do not understand, therefore, since they misunderstand what volatility is, then they fear it.
But there is nothing to fear, because while it is true that cryptocurrencies are volatile, and especially Bitcoin is extremely volatile, that volatility is precisely what makes it so profitable.
Let's see the case of an asset that is not volatile, as is the case with gold; and let's compare it to Bitcoin; Because the price of gold is extremely stable, any trader can make much more profit in a shorter amount of time if he invests or trades Bitcoin instead of gold.
It is also true that it is for the same reason that Bitcoin cannot be a refuge of value, and gold can; but it is precisely that we must locate ourselves in what we are doing in the markets if we want to succeed in them. Let me explain, because if what we are looking for is a refuge of value in the market in general, then there is probably no better option than investing in gold; but if, on the other hand, what we really want is to take advantage of the volatility of an asset to profit from the markets, then there is probably no better option than Bitcoin.
Sure, it's true that something that can go up a thousand dollars, two thousand dollars, three thousand dollars, four thousand dollars, and even more in a short period of time is very scary, but let's look at it like this, if we know what we are doing in the markets, Just as Bitcoin can make us lose a lot of money if we are not careful, it can also make us a lot of money if we are careful and competent in our work as traders.
But I clarify, as I always do, that everything I am commenting on in this post are not investment recommendations for you or for anyone, it is simply my opinion of things; therefore, you alone are responsible and solely responsible for what you decide to do or not do with your money.
Volatility is our friend
If we want to get rich in the crypto markets we should not fear price volatility, on the contrary, we should understand it, love it and embrace it whenever possible; because the volatility in the prices of cryptocurrencies is our friend, because it is thanks to the volatility that these markets are so profitable for those who know how to control their own emotions and know what they are doing.
And let's realize it, for the simple fact of observing that everytime Bitcoin loses volatility in the market it is more difficult to make profits when we trade with BTC. Because when an asset does not have volatility, its price is simply stopped, or it is in a very tight range, which makes it impossible to make a profit when we trade it.
How to Spot Volatility in Crypto Markets
Now, there are many technical analysis tools that allow us to understand the level of volatility that is occurring in the price of an asset at a given time, and all we have to do is know what they are and know how to use them to be able to operate at this time.
For example, an indicator that tells us about volatility is the Bollinger Bands; and the way to understand it is that the greater the distance between each edge or band, the greater the volatility present in the asset market; and in the same way, the lower the volatility, the less distance there will be between one band and another.
Image of the Bitcoin chart, seen through the investing.com platform interface (In it, you can see the examples of high volatility and low volatility measured through Bollinger bands)
Another indicator that we can understand and use in this sense is the DMI, it works in a similar way, although in this case, I will let you investigate for yourselves how this indicator works and is used.
In short, volatility is something that we must use in the crypto markets if we want to be successful traders and make big financial gains along the way; For this, we must always be careful, and study and learn more about trading, investments and the markets every day and be constantly attentive to what is happening in the markets; because that will make us more likely to be successful in them, and because we must bear in mind that volatility is like a double-edged sword, that if used well can be useful for us to obtain profits, but if used badly, it can be catastrophic and can lead the trader to lose all his trading capital.
What do you think about the topic discussed? Please comment.
Gif created by @piensocrates
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