So you’ve been following the crypto market pretty closely. You identified a perfect entry point. But soon after you entered, the market went the opposite way. There was a trend reversal. It was impossible to predict without the right technical analysis or tools. Everything was pointing to a massive surge ahead for you and others.
Don’t worry. This happens often. In fact, tens of thousands of investors fall into this trap every year.
However, you can avoid it if you know how to identify trend reversal signals. Knowing when a market is going to go up or down from it current state allows you to buy or sell accordingly; to take profits, or avoid losses. Doing this consistently and for the most part accurately, stacks up to greater performance.
A contrarian is someone who goes against a widespread opinion.
In investment theory, a trader or investor who makes decisions contrary to the crowd or market is considered a contrarian. This strategy can yield great results and uncover evident flaws in the market.
Remember the movie “The Big Short”? The main character discovers the upcoming real estate market crisis, but no one believed him until it was too late.
So, to be contrarian means finding the patterns in the market that signal change.
The change itself can be positive or negative. It doesn’t matter as long as the uncovered trend is a reversed one. In both cases opportunities exist.
Just like any market, the crypto market goes in cycles. So you need to look for clues and try to identify a pattern of reversal. But how ?
Well, let’s say it’s been a bull market for a year. That means:
In such a long term scenario, the trend reversal is not really sudden. However, in the highly volatile crypto market, prices reverse much more often. Therefore, opportunities can present themselves every day or two…One way to master this is to have a mean reversing strategy in place.
Well, it depends. Are you ready to spend hours analyzing the market, figuring out patterns, and predicting future trends? If your answer is yes, then be sure to know your risks.
Being contrarian also means being ready to follow through with theories that might lead nowhere or to big losses.
Look at the example of Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund. Dalio is a true risk manager who has been known to make bold moves against the market.
In 1982, Ray Dalio, saw that American banks were lending too much money to Latin American countries that were already heavily indebted. These countries had borrowed a total of $327 billion from American banks, and many of them were struggling to repay their debts.
Dalio believed that this situation could lead to a financial crisis, and he decided to act on his concerns. He began shorting the stocks of banks that were heavily invested in Latin American debt, betting that they would lose money if the situation worsened. He also invested in gold, which he believed would increase in value if the crisis escalated.
As it turned out, Dalio was right. In August 1982, Mexico announced that it could not repay its debts, and other countries in the region soon followed suit. The crisis sent shockwaves through the global financial system, and many American banks that had invested heavily in Latin American debt suffered massive losses.
Dalio’s bet against the banks paid off. His investments in gold and his shorts on bank stocks earned him significant profits, and his clients at Bridgewater Associates also benefited from his insights. The crisis helped establish Dalio as a savvy investor and cemented his reputation as one of the most successful money managers in the industry.
However, humans can also make bad decisions.
In the late 1990s, the dot-com bubble was in full swing, and tech stocks were soaring to new heights. Despite the warnings of some investors, many people believed that the tech boom would continue indefinitely. Ray Dalio, however, was skeptical. He believed that the market was overvalued and that a correction was imminent.
In 1999, Dalio began to short the market, betting that tech stocks would fall. At first, his bets paid off, as the market did indeed begin to decline in early 2000. However, as the year went on, the market rebounded, and Dalio’s shorts began to lose money.
By the end of the year, Dalio had lost hundreds of millions of dollars. His mistake, he realized, was not that he was wrong about the market being overvalued, but that he had underestimated the irrational exuberance of investors. He had failed to account for the fact that even when the market is overvalued, it can continue to rise if people are willing to keep buying.
You don’t need to bet big or even spend hours analyzing graphs to be benefit from a contrarian strategy. Here at Libertify, our technology leverages the contrarian theory for you, so you don’t need to worry about finding the time to do it, or getting it wrong with too much at stake. Here’s how it works.
Libertify has contrarian principles and practices embedded in its solution. The Libertify app:
If the probability of a negative trend reversal is high, then Libertify allocates more of your assets into a stable coins (your non-volatile cash reserve). However, if a positive trend reversal is on its way, the platform will reallocate a portion of what you have in stable coins back into the asset.
This way you are consistently trading the volatility of the market, mitigating your risks, and benefiting from the opportunities market reversals bring.