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Why You Shouldn’t Try To Time the Crypto Market

#1
Have you ever heard the famous adage “Buy Low, Sell High” – the most useless advice in the world of trading?  

Assuming that crystal balls and time travel are out of the question, do you really believe anyone can distinguish between a low and a high point with any accuracy? 
A little test: On 29th of November 2013, Bitcoin reached an all-time high of $1,242. Do you believe it then went up or down? 
Up? Down? Not quite the full story. Actually, in just a few days, it has crashed down to $600, where it was stuck in a plateau and never crossed the $1,000 threshold for the next three years to come.
Then, on 1st of May 2017, Bitcoin again reached an all-time high of $1,402.03. Analysts warned of a crash. They then had to pick up their jaws from the floor so they could eat their hats – Bitcoin has surged to unprecedented highs. Not even the most ardent crypto believers have anticipated five-figure numbers.
History laughs at our attempts to generalise complexity into simple rules about the future – it laughs at the ones who attempt to time the market.
Here’s our research-informed take on why you should never try to time the crypto market.  
You’ll underperform the passive investor.
The 2019 “Quantitative Analysis of Investor Behaviour” (QAIB) report is clear. Trying to Time the Market is the number one reason why active investors underperform their passive peers.  All other reasons (high fees, unexpected need for liquidity, lack of available money to invest) trail behind human error, fear, greed, and a lack of better judgement. 
The analysis shows that active investors simply don’t have the patience to stick with their investment funds for more than 4 years. Without a long-term vision, they spread themselves too thin, trying to stay on top of time-consuming 24/7 market updates, the constant bombardment of opinions, analyses, announcements or special reports. They constantly worry whether they are investing in the most optimal way possible. 
What’s the result? According to the report’s findings, over the past 20 years, our typical active equity fund investor achieved an average annual return of 5.3%. Considering all the time and effort that went into it, that is a paltry result. 
It is especially so because it has underperformed a passive investor who gained 7.2% on average per year by simply investing in the stocks of the S&P 500, the most well-known U.S. stock index. 
Quote:To beat a passive investor, market timers need to be right approximately 70-80% of the time. With such odds, even Goddess Fortuna herself would face difficulties in maintaining a meaningful edge over the passive investor

Although the analysis is silent on crypto assets, the underlying logic is the same. Try to time the market, and you’re bound to underperform. Have some faith in the overall upward trend of the market (Buy-and-hold strategy) and you’ll be paid off in the long-term. 
You’ll miss too many paydays
Empires are not built in a day, but the same logic doesn’t seem to apply to the growth of financial assets. The biggest gains seem to occur in just a few lucky days of the year. 
For example, investing in the S&P500 Index between 1995 and 2014 would have yielded a 9.85% annualized return. Nevertheless, if we were to miss just 10 of the best market days, the return would have been a paltry 5.1%. 
Even if they manage to avoid some of the biggest crashes, active investors are far more likely to miss out on the recovery’s upside. That is because during the volatile recovery period they – like many other squeamish investors – flee the market.
Bitcoin and Ethereum have experienced double-digit growth in just a few lucky trading days. If you’re trying to time the market, chances are you will miss out on many such gains.
Emotions will consume you.
Among the ranks of active investors, anxiety is surprisingly common. While many don’t mind having their pillow time interrupted by price-change notifications, the stress will eventually take its toll. 
This is quite evident. One study in the Journal of Finance concludes that hospitalisation rates in California seem to correspond with daily fluctuations in stock prices. A significant fall in the stock market has “an almost immediate impact on the physical health of investors, with sharp [stock market] declines increasing hospitalisation rates over the next two days”. 
Stress levels of crypto investors have not yet been studied, but one can imagine that trying to time the crypto market is a recipe for a mental health disaster. Wild swings in cryptocurrency prices can make the hearts race. 
Checking on the performance of your portfolio regularly is important. But don’t overdo it or worry too much about it. The long-term potential of your investments will ultimately outweigh the short-term turbulence. 
Cooler heads prevail.
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You’ll pay too much in fees and commissions
Timing the market is all about swiftly acquiring and selling the asset at just the right moment. Proponents of this strategy claim that by doing so, they can spot the winners, and drop the losers.  
What’s the catch? They are far more likely to burn money because of more frequent transaction costs and commissions.
No one can expect to consistently and successfully beat the market over multiple market cycles. But they can be certain that they will need to pay high fees in trying to do so.
Active investors who move in and out of various funds, who try to chase the surging assets, are far more likely to underperform when compared to a passive investor – largely because their returns are slowly burnt away by fixed transaction costs and commissions.
Compensating such costs with higher returns is just a fairy-tale – very few (a different 5% of investors each business cycle) actually succeed in doing so. And just because some succeed in setting fire to their returns and then back-flipping off this burning building – doesn’t mean it’s prudent to follow their lead. 
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Ultimately, why bother?
Trying to time the market is a risky and time-consuming strategy. Common sense says that there should be an equal reward that would outweigh the risks. But there’s not. You could spend countless hours trying to beat the game, but it just doesn’t seem to pay its dividends often enough.
Many highly-influential studies in the Financial Analyst Journal all come to similar conclusions about market timing: To beat a passive investor, market timers need to have the correct gut feeling approximately 70-80% of the time. 
Although some of them will get lucky in the short term, with such odds even Goddess Fortuna herself would face difficulties in maintaining a meaningful edge over the passive investor. It is a foolish strategy doomed to fail.  
Here at Voluto, we genuinely believe that timing the market is unimportant when you invest in assets you truly believe in. Your investments will yield best results if you bet NOT on short-term volatility, but on the long-term potential of your investment.
Instead of trying to time the market, we live by a better credo: “The best time to invest was yesterday, the second-best time is today”.

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