Keeping “Dry Powder” means having some basic cash on the sideline, ready to invest if something unexpected happens. It’s critical that you don’t keep your whole bankroll invested at all times! Even the best traders are wrong sometimes. Having dry powder is a hedge against the unexpected. It allows you to double down on trades at lower prices.
Imagine you’re in a trade that turns south. It’s entirely possible that it falls 30%+ on the day. You know this is a good coin, that it will go back up…it’s just the volatile nature of alt coins. Probably a cascade of margin calls, everyone hitting the exits at once. Most traders are going to sell out of fear. Many might even become force-liquidated because they don’t have enough $ to sustain their minimum margin maintenance.
Problem is, you’re stuck in the trade too! The solution? Buy more! Double down while everyone else is afraid. Have your dry powder coins ready to transfer into your margin account immediately. Once the backup-coins hit your margin area, buy that beat-up coin hand over fist! You’ll make the most money by buying the dip. Buy low – even if that means buying more as it goes down.
Now you’re cost averaged lower, and your trading account is topped up at the bottom of the charts. You can instantly start using new profits to buy more as it bounces back up. Don’t get too greedy though! It is important to put the dry powder back in a segregated account asap! Don’t gamble it all, all the time. The present is no indication of the future when it comes to investing.
Dry powder could save your entire bankroll from being vaporized too. You should always own more than 1 coin because it’s best to diversify; limiting the risk of one coin crashing and crippling you. It is possible that they ALL do go down 30%+ however. This would almost certainly force-liquidate everyone that was on full margin…if they didn’t have dry powder to add. You, thoughtful trader, can add some dry powder save your positions from force-liquidation.
Once you sell for a loss, you can’t recover that $. You don’t lose $ until you sell it. Best to hold on for the rise back up while buying at the more bottom. Concentrate on some other investment in the meantime. Crypto investing is risky! Most people lose because they are taking every risk offered to them in hopes for huge reward. Bad idea. Stay safe. Stay long.