Robert Steinadler, 7 months ago
Many influencers on Twitter already have pointed it out: Bitcoin is in the red for 7 weeks now and that is indeed a historic moment. The market never faced such a drawdown and many traders are speculating that we will get a green candle soon. Our crystal ball is broken and we cannot predict the future for you. But what we can absolutely do is analyze the statements that have been made in the past few days.
How does one spot the bottom of a market and even more important, how to spot the type of speculation that doesn’t make any sense at all?
The gamers fallacy describes a very common phenomenon. Let’s say you are in a casino and you are gambling at the Roulette table. In the last 3 rounds, you’ve placed your bet on red but nevertheless black won and you’ve lost.
Here comes the misconception: Just because you have lost three times in a row doesn’t mean that it becomes more probable that red is going to win in the fourth round. The past events have no influence on what is going to happen in the next round and in all other rounds following thereafter.
So, will we see a green candle in the weekly because the last seven weeks have been red? Well, we might see a green candle but most certainly not because other candles had a different color. It is absolutely possible that Bitcoin is going to drop further.
But how can you spot the bottom? The answer is: You don’t. Most people fail to spot the top of a market and they also fail to estimate the bottom. Timing the market is incredibly difficult because there is so much information that you don’t have.
To mitigate this fact there is a strategy that helps you to avoid timing the market by buying an asset at arbitrary points in time. This is also called dollar-cost average and by constantly investing a small amount every week, month or quarter you will most likely receive a lower average entry price than trying to catch the bottom.
This has another advantage. Most retail investors don’t have much time to watch the market and react to its every move. Dollar-cost average helps you to do something more meaningful with your day.
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