The power of the boring middle ground

Bitcoin recently dropped to 58,000 dollars, more than halving from its peak of 126,000. In a bear market like that you see various strategies, or the lack of one, pass by: pulling the handbrake at a preset level, selling in blind fear, or doing nothing at all and riding the whole way down. The market proves that timing is a lottery, even with the best tools. That is why, as far as I am concerned, the biggest chance of return lies somewhere else: in the boring middle ground.

Sometimes, I compare investing to surfing. The best surfers do not wait for the perfect wave, and they certainly do not try to catch the exact moment a wave reaches its highest point. They paddle along as soon as the wave takes shape, ride it for as long as it carries them, and step off before it crashes onto the sand. 

Investors usually do the opposite, and anyone who has been around the crypto market for a while will recognize the pattern. After an all-time high you do not sell, because the sky is the limit. Then the price drops ten percent. A healthy breather, you think, before we climb again. But instead of recovering, the price keeps falling, and before you know it you are below the price you bought at. You had fully intended to scale back at the peak, but euphoria had taken the wheel. 

At the bottom, exactly the same thing happens, only in reverse. The eagerness that kept you holding on at the top turns into fear during a deep decline. The pain of a loss is double the pleasure of an equivalent gain, and it hits hardest at the moments you want to keep your cool. The skill, then, is not in switching off those emotions, but in sticking to an approach you keep following, even when your gut whispers something else.

At Amdax we follow the markets day and night. We see patterns, trends and data that point us in a direction, but we do not have a crystal ball either, and for us too it is simply impossible to hit the exact top or bottom. That is why we prefer to look at the movement itself. We move with the trend: stepping in when a rising market gets going, scaling back as soon as that trend turns. By definition we miss the absolute extremes, but we also avoid riding the whole way up and then all the way back down again. Like the surfer, we deliberately leave the final meters of the wave untouched.

That does not sound exciting. With us there is no heroic tale about that one brilliant sale at the top, no bar-stool bragging about a bottom we sensed flawlessly. The gain, I am convinced, lies in the boring middle ground.