In this episode of the BeInCrypto Video News Show, host Juliet Lima discusses several trading strategies to use in a bear market.
Trading cryptocurrencies under normal market conditions is already difficult. As a new asset class, they can be extremely volatile and they don’t have a long-term track record to base their trading patterns on. This makes them even harder to manage when the market has turned down, also known as a bear market.
Bear markets occur when prices in a market fall by more than 20%, often accompanied by negative investor sentiment. However, during these times, there are several strategies traders can use to make the most of the turbulent times.
Buy the dip
While new cryptocurrency traders may feel desperate for Bitcoin’s decline this year, it may feel more familiar to more experienced traders. Looking at charts from past years, downtrends are eventually overtaken by uptrends, also known as a bull market.
But even during periods when prices fell, the lows were higher than before, which means that the price is continuously rising over time. In such cases, buying crypto during one of these down periods means traders are actually buying at a discount.
This is called the psychology of the market cycle and for the adoption of crypto, as it is a new technology, it can be represented by the Gartner hype cycle. The peak of exaggerated expectations has passed and we have reached the trough of disillusionment.
However, if merchants believe in the project and see that it brings value, people will continue to use and buy it in the future, eventually reaching the slope of enlightenment. Once the productivity plateau is reached, any crypto purchased before will have been worth it.
Average cost in dollars
Another even simpler strategy than buying the dip is known as dollar cost averaging, which was covered at length in another video. With DCA, rather than trying to strategically buy an asset during a downturn, traders systematically buy an asset for a longer period, regardless of price.
During bear markets, this may seem counter-intuitive, as the value seems to continually drop. Yet, as the price goes up, the value of assets is usually worth more than what was paid for them.
The final strategy is a more advanced technique, in which traders must first determine their risk capital or the amount of money they are willing to lose. While Bitcoin has mostly steadily appreciated, other cryptocurrencies have completely crashed, such as recently with stablecoin TerraUSD.
However, the latter strategy involves the use of stablecoins, which are cryptocurrencies whose value is pegged or tied to another commodity or financial instrument, usually a currency like the US dollar.
When the crypto starts to drop, traders can exchange it for a stablecoin to hold its value. Then when the price starts to rise and the bear markets start to end, they can convert it back into the cryptocurrency choice, hopefully at a lower price to get an even bigger amount. Although it does require a keen eye and very strategic timing, making it the riskiest of the three strategies presented here. An untimely exchange could go wrong and lead to a substantial loss of value.
Besides these three strategies, Juliet offers 3 starting suggestions for trading in a bear market:
- don’t sell
- Buy more
- If you sell, buy back cheaper
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