The recent difficulties of bitcoin on the market, with the price that has now almost halved its value compared to the maximums reached in the first half of this 2019, have rekindled doubts above all among the neophyte traders, those who may have entered this world at the very beginning year attracted from the beginning of a new bull run.
Very typically those who are in this consideration are led to believe that the bull runs will never run out and that as well as the bitcoin price has gone from zero to 20 thousand dollars in the same way now must necessarily go from 3 thousand dollars (last minimum) to 1 million dollars within a few months; needless to say things are not at all like this, bitcoin took 10 years to reach the maximum of 20 thousand dollars in 2017 and in the middle of the two extremes it happened practically everything, with collapses of exorbitant prices that pushed to the brink small investors desperate (just think of what happened with the failure of mt.gox, at the time the main exchange on the market).
Once he realized that things are not as easy as the guru on duty had made him believe novice users inevitably come to ask themselves a series of questions regarding flash crashes, dumps and more generally the collapse in prices. What do they depend on? Why do they occur? How can they be avoided? Let's try to understand it together.
First of all we start from the flash crashes, these are due in principle to the manipulation, what happens is that the whales (users that control thousands of bitcoins) suddenly start to sell massively, in this way consolidate the profits, push down the quotations, fueling panic among small investors and being able to buy back at a lower price, further increasing their stocks.
As the stop losses of the traders start, then, the price slides even lower, the panic is rampant on the market and the whales rush to buy the new fund; these phenomena on bitcoins are starting to become increasingly rare due to the high liquidity, but on the altcoins, which often have low volumes, they are still very frequent.
A dynamic of this kind can also come to be created on the upside, in this case a group of users who have enough capital start buying at low prices, accumulating more and more coins; this accumulation phase can last weeks, even months and ends, suddenly, when those same people start buying hands down making the price rise.
When small investors and automatic trading algorithms read a reversal pattern on the charts, they are catapulted to buy and, as they buy, they place their stop losses; in this way the price continues to grow, in some cases the coins involved in these maneuvers double their value in a few hours and it is at that point that those who gave birth to these movements start selling suddenly, consolidating enormous profits and , as it sells, triggers the stop losses, the price then reverses, begins to fall and invariably returns to where it started.
For the rest, price falls can be caused by absolutely natural phenomena such as negative news that undermines investor confidence and leads them to sell, or the depletion of a bearish cycle; one must always remember that the price, while following a trend, does so moving within a range made of minimums and maximums, so it may also be that what we read as a vertical drop in prices is actually a simple retracement and the once its minimum has been reached, the price rises again, marking a new high.
The reasons why the prices of a cryptocurrency collapse, therefore, can be different and it is the ability of the trader to understand what is attributable that particular collapse (if it is possible to find him a concrete and rational motivation) and, from time to time, decide whether to keep the position open even at a loss or if it is not better to sell instead, consolidating the losses to avoid greater losses.
