When you are trading, do you realize that when the market is falling and you are incurring losses, you generally add more positions to those you already have because you sense that the market will rise again and thus recover your losses sooner?
Surely many times the market has continued to fall and what happens is that the losses multiply even more. It has happened to all of us.
But let's leave this and see what we should do in case the trend is bullish and goes in our favor.
When the market rises and profits accumulate, it is also common to invest more money because the feeling is that it will rise further and in this way we will multiply our gains.
Yes and no.
Although it may seem like a good strategy on one hand, the market does not move in a straight line but rather retraces to a greater or lesser extent, so we will find that if the market drops shortly after we have increased our positions, the profits we have earned up to that moment with so much effort will dissipate more quickly, which will affect not only our portfolio but also psychologically.
Therefore, taking into account that the market moves in a sawtooth pattern (some deeper than others, and we won't even talk about cryptocurrencies where the retracement can be really deep...), every time the market moves decisively, even vertically, a very good strategy, instead of adding more positions, is to unwind a small part of them and convert them into FIAT money (euros, dollars, etc.) within the same exchange (Binance for example) to accumulate a liquidity cushion that we will take advantage of to buy the most capitalized cryptocurrencies after one of those aggressive retracements that the crypto market is accustomed to, or even in a crypto-winter.
Buying cryptocurrencies under these circumstances, with such a cushion, will yield great profits in the long run.