Ethereum High Buying and Low Selling
The "dumb money" dealer, who was identified by the on-chain monitoring service Lookonchain, spent $12.5 million in stablecoins to purchase 7,135 ETH when it increased 10% to $1,790 in September 2022. Nevertheless, a later correction compelled the trader to sell the entire hoard for $10.51 million.
The trader lost roughly $1.75 million as a consequence. It's interesting to note that if you had waited and sold at today's price, you would have lost only $1.14 million.
In February, when the price of ETH had increased by around 10%, the investor's trades reappeared. According to the data, $7.65 million in ETH was purchased on February 16, only to be sold eight hours later when the price of ETH declined, resulting in a loss of an additional $324,000 in profit.
Don't rely solely on one fund
On September 12, only three days before the long-awaited Merge update, the investor made their first trade of stablecoins for ETH.
But, The Merge ended up being a "sell-the-news" operation. So, it was unwise to get too bullish about Ether based on a single solid factor.
Traders should think about a number of elements before making a choice; betting the farm on a single indication, even if it's a highly anticipated news item, is usually a poor approach.
One such statistic was institutional flows, for instance. According to CoinShares' weekly report, Ether investment funds had withdrawals of $61.6 million in the week before to the Merging, indicating that "smart money" was bearish.
Put option hedging
In order to reduce risk, investors might open a put option contract against their bullish spot option.
A put option grants the holder the right, but not the duty, to sell ETH at a specified price on or before a specific date. In order to protect oneself against ETH value losses, the investor might sell the asset at a predetermined price if the spot price of ETH dropped.
Check your momentum before going all in.
Instead, it could be wiser to enter positions gradually while still leaving some fund on the sidelines. As a result, investors may purchase Ether (ETH) during a short or long term bull run and still have some capital available to buy on possible drops, using a variety of technical indicators as cues.
The relative strength index (RSI), for instance, shows whether Ether is oversold or overbought on particular periods. Hence, going long when the RSI is close to or over the 70 level and creating a lower high has a high risk of failing.
The two times the aforementioned investor purchased ETH coincided with the RSI hitting a lower high are seen in the daily chart of Ethereum below.
In the end, traders' failures can teach us what works and what doesn't for investors.
It is up to the reader to do their own due diligence before making any investment or trading decisions, since there is always risk involved.
