Investing in cryptocurrency is the best thing you can ever do. Still, looking at it from another angle can also be very difficult and uninteresting, especially in this present period when a bear market controls the prices. While making money in a bull market is cool and exciting, getting through a bear market is the best key to gaining more experience in trading crypto.
So, whatever you see or hear out there, it is good news to let you know you can still profit in a bear market. As much as the cryptocurrency market is moving, you can make a profit. Even though no one can predict how long bear markets will last, you can still position yourself to benefit from them.
Now the question is, what is a bear market and how do you profit during a bear market? In this article, we will answer these questions.
What is a Bear Market?
A Bear Market can best be described as a negative trend when it comes to the market prices. It indicates a significant fall in prices in a market for a particular period.
So, comparing it with a Bull market, these two (bull and bear market) replace each other as you can't predict the market prices in the world of cryptocurrency. A bull market is the opposite of a bear market. It is the condition of a financial market in which prices are rising or are to increase. While you can easily make money in a bull market, getting through a bear market is the primary key to acquiring more experience in trading crypto. Thus, a bull market can be a favourable market, while a bear market is otherwise.
So, what any investor is to do in any bear market condition is not to fear a bear market, but rather employ some alternative strategies, which includes:
1. Enhance your Technical Analysis
One thing Bear Market is suitable for is research. It means that before you invest in any coin, you must understand every ins and outs of the currency. Suppose you choose to invest in the cryptocurrency market, just like any other investment. In that case, you must do your research before you hand over any money. Investing in the world of cryptocurrency means taking a risk. By doing your research before investing, you help to grant yourself the best chances of success in the bear market.
HODLing is another strategy you can implement during a bear market. The word “HODLing” actually seems confusing as most people believe it is a misspelt word, especially for beginners. This word was accurate back in the day it was created. But these days, it has turned into an entirely accepted word in the world of cryptocurrency. However, this word that seems to be misspelt became an acronym for “HOLD ON FOR DEAR LIFE”. It means that traders do not trade or sell their coins even if the bear market moves deeply into the red. So, this trading strategy is only used by those traders who are enthusiastic and prepared to wait. HODLers believe that they will be rewarded for trusting their currencies when they hold on to their coins and bear the pressure. HODLing has become a part of the crypto culture. As a strategy, it has gained a lot of trust and backing from investors globally.
3. Buy Low and Sell High
This strategy takes advantage of the greed and fear in the bear market. How? By doing the opposite of what most traders will do or would have done.
Several traders believe that stock prices will continually fall. Because of that, they run off to sell their stocks at lower prices to avoid further losses, thinking that is the best thing to do.
The question now is, what are you expected to do in this period? Simple! Just take advantage of this fear and buy at a lower price. To be sure you will not lose your money, be economically updated, and then buy just at the point prices begin to show signs of strength. That being said, you are buying at a low cost, but when prices start to go up, expect a reward for trusting your coins.
Shorting is another helpful way a trader can operate in a bear market. It involves the borrowing of stocks that don't belong to you, selling them off while the price is high and then repurchasing them while the prices in the market drop.
You can short with a stock that belongs to you, also known as shorting "against the box".
Most crypto traders don’t like to short, and this is because the rate at which the prices of the market goes down is unbearable and high compared to the rate at which the prices go up. Of course, there is risk involved in it. You are bound to lose your money if the stock costs continue to increase while you have sold short. However, note that this can be a very effective and helpful strategy to follow when making money in a bear market if you set your timing right.
5. Don't put all your eggs in one basket.
Even though cryptocurrency is exciting and income yielding, it can also be very unpredictable and easily affect market conditions. So, considering the nature of investing in crypto coins, it is considered extremely risky to support all your money in cryptocurrency during a bear market. Doing this could lead to you losing all your investment within a short period or make millions within a short period. However, either way, do thorough research on any form of coins you want to invest your money in. It's not every trader that has the mind to bear the pressure during a bear market.
6. Focus on price action
Price action is another trading strategy that helps you make better trading decisions in a bear market. Price action indicates what the market is doing and not what you think it should do, compared to indicators, fundamentals, or algorithms. Price action is the true definition of the trade what you see and not what you think. Bear markets offer a great opportunity for crypto traders. Still, too many of them misuse this opportunity by placing all their focus on “value” rather than price action. There is no way you can value stock in a market when you have no deep knowledge of how long the economy will be down—because most of these stocks will pull through. Still, no one knows which ones will take the lead until they start to rise. As a crypto trader, you should focus on price action rather than the value if you navigate successfully.
7. Don’t give in to the Fear of Missing out (FOMO)
It's a natural feeling to regret missing out on a good thing. It's hard to hear or see other investors get rewards of thousands of per cent in short periods with the same investments you missed out on. This Fear of Missing out (FOMO) can be so overwhelming. But the best investing behavior you can imitate in a bear market is not giving in to FOMO. In reality, you don't need to do anything. You don't have to go with the flow and pile into the investment trend of the day, and neither should you try to time the market by cashing out. However, implement a long-term outlook and hold on to your investment policy. To become a great investor, you should pay no attention to the noise of the market and stay focused on your long-term goals.
8. be careful of massive red candles.
Considering the benefits of buying the dip in a bear market, you, as a trader, would also need to set your stop-losses. It guarantees the fact that you manage your risks appropriately. Both bear and bull markets are unpredictable and can change anytime, which means volatility may not always be your friend. However, either you are shorting s trade or longing it, you must set your stop-losses all the time in case the market moves that you expected. Thus, you can get out of a bear market without losing.
Having read through the article above, I believe with the above strategies; you can now get through a bear market with ease without losing your money. However, no matter what trading style you choose, it is essential that you keep up a positive mental attitude. Make sure your mind gets filled with positivity. Having the mindset that you are not confident enough to make money means you will likely not have. The market is good because there are still opportunities out no matter what the situation is. All you need to do is develop the right and positive mindset and strategy to realize that. Of course, it would be best if you hoped for the best and prepared for the worst at all times.