But in general terms: Don't invest more money than you can stand to lose. Have an investment thesis. As long as this thesis holds, don't sell and don't even check the value of the asset you are holding. Don't invest in volatile assets with money that you will need in the near future (within five years or so).
Forget the price at which you bought your asset. Always keeping this in mind leaves you horrendously exposed to the "sunk cost fallacy". Ask yourself instead: If I had nothing invested, would I buy at this price? If the answer is no, that is a strong indication that you should just take the loss, or even sell if the price has increased.
You could also have a plan beforehand, i.e. sell if it's down more than 30% or if it's up more than 60%. And if you make such a plan, you need to stick to it.
Taking a 20% loss on an asset like Bitcoin, which has appreciated >10,000% in a few years is really not a big deal. This is the king of volatile assets. If you are consciously investing in such an asset, you should be able to shrug at either a 50% loss or a 100% gain. Most people would (perhaps rightly) call you crazy for keeping a significant part of your investment portfolio in such an asset.
I think you're too hung up on the fact that you used to have $X in BTC and now you have $Y. Instead, just start from the premise that you have $Y. Your goal isn't to recover your old $X, it is to grow your $Y as much as possible.
What is currently the best investment you see available to you? Is it Bitcoin, or any other cryptocurrency? Are you better off with cash or a low risk CD? Maybe a mutual or index fund, or is there a country whose debt is currently going for a good price?
Once you know where you're going, it's a lot easier to get there. If you think Bitcoin has the most potential at a level of risk you're willing to accept, leave your money there. If you think something else has a better combination of risk and reward, move your money there.
(Essentially: when you are behind you believe that you can quit while you're ahead, but when you are ahead you feel confident and prefer to press your luck)
In general, if you are investing some place that makes you feel anxious or emotional about the consequences, it's far too volatile and you should cut your investment down.
The best way to escape from this situation is to make an exact plan and stick to it. Would you rather walk away now, or risk a worse loss later? Then, at what value will you cash out? I understand you are attached to your initial investment cost, but really 100% is the valuation now, since the rest is sunk costs. Decide how you like, but firmly - take the emotion out of your decision making.
Else you'll be stuck in an infinite loop of second guessing yourself and what-ifs that do not contribute to either your financial stability or your sanity.
If the plan sucked, you can revisit it on a later round, and if not completely sure about your plan, you can do mini runs of it to test, but the important part is to stick to deadlines/commitments so the anguish stops.
Ultimate Goal: Produce 300k+ from 7k. Insanely unlikely, I know. But if things unfold like I'm hoping, this will nearly close out my mortgage; a life-changing event for a family man such as myself.
Disclaimer: Don't play with money you cannot afford to lose. I have 7k that I can burn on crypto. I won't be happy to lose it all suddenly, but it won't put me in the poor house or ruin my daughter's college fund. My true family funds are in e-trade.com collecting dividends 'n such.
Overriding-rule: Never be 100% fiat or 100% coins. Be ready to make a buy or sell at any moment.
Back in Nov 2013 I put in 1k and the market promptly crashed afterwards so I have 26 litecoins(at $40 each) I can't sell for a long while. I knew my luck from experience on e-trade, so this didn't phase me - it always starts this way. The next 1k I sent into crypto-coin world is at btc-e.com where I day-trade. At first I bought and sold quickly, simply making 4 to 5 dollars. Just getting use to how btc-e.com works and its transaction speed. Then I started to make bigger and more long-term bets as I observed the big swings. It appeared to me after a few months of watching that Litecoin biggest swings are between $18 - $29. So when MtGox had its recent issues and "Russia banned bitcoin" pulled the price down, I bought in. I'll make about $600 when Litecoin reaches $29 again. But on the other hand, if the price of bitcoin goes below $500, I will put in 1k for the 3rd time. If bitcoin falls below to single digit numbers[1], then I'll buy 3k more. This brings me to my limit of having 7k in the crypto-coin world. I will now sit back and wait.
If we ever see $1,000/BTC after the events I describe above, I will sell everything I have - producing at least 300k. I'm done. Or, BTC will simply fall into oblivion and I've lost 7k. I'm "fine" with that, but I'll always make sure to have copies of my private-keys for the rest of my life... just in case.
1. http://www.businessinsider.com/williams-bitcoin-meltdown-10-... ...very unlikely, but if it happens I'll have USD waiting.
That's not a plan.
Well, whatever you want to call it "plan"/"strategy"/"hope"/"insane dreaming". About this time last year, if I executed on my "plan" I'd have reached my goal in Nov 2013. Bottom line is I think bitcoin still has a disaster or 2 or 3 ahead of it that'll tank the price; only to recover a month or 2 later. With all this MtGox drama happening + "Russia banning bitcoin", I'm poised to move. Also, this list[1] was front-page of HN at one time. If #9 actually happens, combined with a disaster that makes the price tank - say, MtGox shutting down & "USA bans Bitcoin!!", then I'd be set.
I know my "plan" depends on 2 unlikely events. Probably won't happen, but this is bitcoin we're talking about. Nobody knows what will happen yet. This is my "plan" based on the craziness I see of bitcoin. Nothing really that special; buy low & sell high. Call me crazy but I say coins still has a few huge swings coming up in 2014. MtGox is already causing one right now. Even if these extremes don't happen, I got 1k that I'm day trading with under smaller swings that I'll at least earn back the 2k I've put in so far if not more.
1. http://lightspeedindia.wordpress.com/2014/01/13/bitcoin-2014...
Bonus: Reddit is doing a good job of getting people all riled up to cause these big swings... http://www.reddit.com/r/Bitcoin/comments/1xitx4/im_giving_1_...