Many of you who are reading these lines are, perhaps, a bit more optimistic than two months ago when we were hitting the rock bottom prices of our favorite crypto assets. However, if we are finally out of the bear market, market cycles appear cyclically, and what we are about to explain will come in handy once again for sure.
In this article, we are going to explain how experienced cryptocurrency traders behave during the prolonged bearish market sentiment, and what they do to score some gains despite the unfavorable market conditions.
There are more than a few trading tactics that can be utilized to survive and prosper during the mentioned conditions, so we are going to start with the most simple one and continue towards more complicated scenarios.
Staying out of the game
To be able to stay out of the game, traders primarily have to decide when is the right time to exit all their trades before the bearish reversal takes place.
In order to do that, they have to correctly read the technical indicators which can indicate the reversal, mostly by showing the declining momentum.
The BTC/USDT chart above shows that the reversal at the end of 2017 could easily be foreseen by only looking at the divergence on the RSI readings compared to the price movement, and trades could act accordingly by selling at the highest possible price.
However, being out of the game with fiat or stablecoin in your hands means that you have to decide when to enter the market again.
Similarly to the previously described process, traders have to implement their knowledge of various technical indicators and Fibonacci retracement to spot long-term reversal patterns towards the bullish market sentiment and enter the trade when they are confident that the market is on the rebound.
Buying the Bounces
Prices of cryptocurrencies during the bear market do not just fall down in a straight line. They are swinging time and again as bulls and bears fight for the supremacy. Sometimes, buyers get the better of sellers and the price rebounds and rallies even for a longer period of times.
Experienced traders often try to spot that bounces and enter the trade from which they can benefit from the short-term bullish movement.
Again, by implementing their knowledge of a variety of technical indicators, such as Bollinger bands, those traders buy the bounce and ride the short to mid-term wave, just to sell again when that momentum falls (the BTC/USDT chart below).
Needless to say, once traders enter that trade on the dip, they need to create a stop-loss in case they were wrong about the support, which could lead to losses due to the further decline in the valuation of the cryptocurrency.
Shorting or short selling is, basically, borrowing crypto assets to buy them at a later time to cover the position. This way, a trader can score profits off the spread from the decreasing price or record a loss due to the price suddenly rebounding.
Shorting, while somewhat similar to “buying the dip” trading tactic, is a risky business and has to be conducted with the highest level of care and technical knowledge.
Not all trading platforms allow traders to short trade cryptocurrencies per se. Those that do offer these services by which traders can short an asset:
- Margin trading
- Futures market
- Binary options trading
- Predictions market
Exchanges such as BitMEX allow investors to “borrow” funds so they take a position. Some of them have also implemented the leverage factor that can enhance traders’ profits or losses dependant of the end result of a trade.
In futures contracts, investor “signs” a contract to purchase a cryptocurrency at the specific date for the specific price. Futures contracts can be utilized in the bull market as well as during the bearish market sentiment, as the right foresight allows the trader to get more than he paid for.
Binary options trading
By executing a put order, a trader is given the right but not the obligation to sell a specific crypto asset for a specific price.
As can be seen in the example above, if a trader is sure that the market will continue its decline, he places the put order at the highest possible price. Once he executes the contract, he can immediately re-buy the asset, benefiting from the difference in the price he sold the contract for and the actual price of the crypto asset.
Binary options are among the riskiest investments in the market as in case of the misinterpretation of the technical indicators or fundamental analysis, a trader can be left with the contract by which he can get a lot less money than the asset is actually worth.
Predictions markets are very similar to betting. Traders create a “betting” event and prognosticate that the price of BTC would decline by a pre-determined percentage in some time interval. If they receive a counter bet, they make a profit if their prediction was correct.
However, traders involved in the predictions market should be highly skilled technical analysts in order to lower the risk to the minimum if they hope to be successful in the game.
Finding “The” Cryptocurrency
The ultimate win situation in the bear market is when an investor finds the rare cryptocurrency whose price is surging despite the ongoing bear market.
Yes, that is quite possible.
Still, technical analysis, in the majority of cases, isn’t going to do help you find it. You will have to utilize diametrically opposite tools in order to deduce which crypto has the potential to “beat the market”. Those tools are called the fundamental analysis and the overall knowledge of the market.
Every little detail can play a part for the asset to bullish in these market conditions – the fantastic team in charge of the project, few important milestones in the development, or maybe the asset is taking a pivotal part in the important trading platform, like Binance’s BNB token.
The BNB / USDT price chart below shows how BNB, despite the worst possible environment, steadily grew since February 2018 until June the same year.
As visible in the chart, investors who believed in BNB based on their fundamental research could easily score up to 220% gains in the midst of the ongoing bear market.
The bear market, despite being depressing for most investors, has its upsides for those who know how to utilize their knowledge.
Still, in order to be able to profit from described techniques, traders first have to spot that the bear market is indeed approaching and then they have to be able to adapt. In any case, it shouldn’t be causing despair since, as we now explained, there is much to be done during the rule of market’s bears.
For sure, it is more difficult and takes more work, dedication, and risk than its bullish counterpart, but if you play your cards the right way, you will have much more crypto assets to use in the upcoming bull run (if it comes).
And usually, in crypto, it comes:
Until the next time, trade responsibly.
Disclaimer: This article is not investment advice. Note that cryptocurrencies are highly volatile assets and very risky investments. Do your research or consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.