In a recent video update, successful crypto investor and prominent crypto analyst Lark Davis discussed the five worst times to invest in cryptocurrencies. Davis shared the following insights to help investors avoid common pitfalls and increase their chances of success:
- Buying at Listing: Davis begins by cautioning against buying a coin immediately after it’s listed. The initial excitement and FOMO (Fear of Missing Out) often lead to inflated prices, making the first few minutes or even the entire first day of trading highly volatile. He cites the example of Aptos, which spiked to $98 in the first few minutes of trading before collapsing 67% in the following two weeks. Davis suggests waiting a week or two before starting to build a position in a new coin, as prices typically stabilize during this period, offering a much better entry point.
- Overbought Technical Indicators: The second worst time to buy, according to Davis, is when technical indicators show strong overbought readings. He explains that when the Relative Strength Index (RSI) hits over 90, it’s usually a red flag that the market is overheated. However, he emphasizes that the RSI should not be used in isolation. For instance, he points out that the RSI on Matic topped out at 97.5 just a couple of days before a significant price drop. But using the MACD (Moving Average Convergence Divergence) in conjunction with the RSI could have indicated a potential trend reversal, helping investors avoid a 70% drop.
- Resistance Levels: Davis warns against buying when a coin is pumping and hitting resistance levels. He uses Bitcoin as an example, illustrating how buying at resistance can lead to losses when prices fall. He points out that low volume at resistance levels can indicate that a move is running out of steam, making it a dangerous time to buy. Instead, he recommends waiting for a breakout or a retracement for a safer move.
- Big News Stories: While significant news stories can improve a coin’s long-term fundamentals, Davis warns that the short-term price impact often leads to a subsequent drop. Investors who buy in response to big news often find themselves providing exit liquidity when the initial buzz wears off. He advises investors to consider how they would feel about the news if the price were to drop by 50% in three weeks. If the news still seems bullish, it might be worth investing; if not, it’s likely best to avoid buying.
- Market Euphoria: The final worst time to buy, according to Davis, is during the market’s euphoria stage. This phase is characterized by wild exuberance, with people posting pictures of their new wealth and making outlandish price predictions. Davis suggests being fearful when others are greedy and vice versa. He mentions indicators like a massive spike in Google searches for crypto, the Bitcoin fear and greed index with readings over 90, and Coinbase being among the top five downloads in the App Store as red flags that the market is in a state of euphoria.
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