Often we are looking for a cheesy list of those undervalued or undersold tokens under $1 because we are kind of habituated of watching 1-2 tokens from that list going to the moon. That’s absolutely acceptable in the crypto world, at least as of now! The crypto world is in its teenage, full of energy, youth but a promising future.
While “buying low and selling high” is a reasonable approach in the current market scenario, it is important to take learnings from its matured counterpart stock markets and see how “Buy High, Sell Higher” trading strategy can be applied here.
Let’s first have a look at the more common and conventional strategy of “Buy Low, Sell Higher” which is much more difficult than it seems and buying tokens that are near or at all-time lows may actually add risk to your portfolio, rather than reduce it.
Why buying at lows could be a deal breaker
- Beaten down token could never retrace its losses or it’s going to take a relatively higher time for it to recover its highs.
- The opportunity cost of holding the token will increase over time – if the token does not recover comparatively fast enough.
- Picking all-time low during a stock is extremely tough for individual investors. Several investors are lured into a false sense of security when shopping for crushed down corporations, solely to be frustrated because the stock continues to fall.
- Purchase a token that’s out of favor also means that you are betting against the conventional wisdom of the market movers or Whales. In different words, the token is affordable for a reason: managers of massive cash don’t see the long run price within the company at supposed “cheap” prices.
Buy High, Sell Higher
A rather unconventional but a logically infallible approach is buying high and selling higher. Many traders are on the lookout for tokens that are near their all-time highs and have strong fundamentals supporting them. However, it should be noted that it is not a good idea to blindly buy tokens off of the new high list. With a very little analysis and study from your side, you can strike off the ones that are fundamentally flawed and a clear pump and dump.
Reasons for trading such tokens:
- First, you are buying a token that is trending upward, not downward. And you don’t have to wait and hope for a turnaround. There are the highest chances that your chosen token has proved its value before you buy it.
- A token that is near its high is moving upwards with institutional money instead of fighting against it. BTW, it’s the institutional money that moves the token prices upwards and not your or my money. So essentially you are reducing the risk of losing money since you are aligning your investments with those from money managers who manage billions of dollars
- Cheaper tokens combined with fewer volumes means that you might find it difficult to exit the trade if you want to. Remember what I told you about the institutional money moving the prices upwards or downwards!
- And lastly, as you figure these up trending with relatively strong fundamentals, wait for a minor correction of 8-12% before you pull your trade. This will provide some cushion for any potential losses and mitigate the risk of “buying at the top”
If you look around, you can quickly relate to what I am trying to convey here. I believe this might also explain the reason why a lot of the fundamentally strong stocks continue to break their all-time highs every day.
Some cheap tokens are indeed true worth plays and trading them can end in substantial gains. However, shopping for low-cost tokens isn’t an unhazardous strategy. In fact, your risk of loss may very well increase over time because the token loses worth or fails to meet your expectations. Think about shopping for strength, and acquire comparatively high-ticket tokens. The risks aren’t as high as they seem and therefore the potential for gains is systematically higher than fishing for bottomed out or cheap tokens.
About the Author:
Rishi Agarwal is the Founder & Chief Editor at Coinscenario.com and also a savvy fundamental and technical analyst with a diverse experience in project management, sales and business operations across telecom, advertising and blockchain technology.