In an episode of BeInCrypto’s Video News Show, host Juliet Lima discusses a few trading strategy used in bear markets.
Trading cryptocurrencies under normal market conditions has been challenging. As a new asset class, it can be volatile, and has no long -term history to base its trading model on. This makes them even trickier to deal with when the market is taking a turn for the worse, also known as a bear market.
Bear markets occur when the price in the market falls by more than 20%, which is often accompanied by negative investor sentiment. However, during that time, there are a number of strategies that traders can use to optimize the turbulent time period.
Buy a dip
While new cryptocurrency traders may be feeling sad Bitcoin‘s dip over the course of this year, it may seem more familiar to other more experienced traders. Looking at the chart of the past years, the downward trend is finally followed by the uptrend, also known as the bull market.
But even when the price goes down, the price is higher than before, meaning my price goes up constantly. In this case, buying crypto during one of the down periods means the trader is actually buying at a discount.
This is known as the psychology of the market cycle and for the adoption of crypto, because this is a new technology, this can be represented by Gartner hype cycle. The peak of rising hope has passed, and we have reached the threshold of disappointment.
However, if traders believe in the project and see that it provides value, people will continue to use and buy in the future, eventually reaching the slope of enlightenment. Once the productivity level is reached, the previously purchased crypto will be proven.
Average dollar cost
Another easier strategy than buying a dip is known as Dollar Cost Averaging, which is covered in length another video. with DCAinstead of trying to buy assets strategically during a downtrend, traders consistently buy assets over a longer period of time, regardless of their value.
During a bear market, this may seem counterintuitive, as the price continues to go down. However, because the price eventually rises, the value of the asset is usually on average much more than it paid for.
The latter strategy is a more advanced technique, where traders have to determine their risk capital or the amount of money they will lose. While Bitcoin has been for the most part consistently appreciated, other cryptocurrencies have completely collapsed, such as recently TerraUSD stablecoin.
However, this latter strategy involves the use of stablecoins, which are cryptocurrencies whose value is pegged or tied to other commodities or financial instruments, usually currencies such as the U.S. dollar.
When crypto starts a downward trend, traders can switch to a stablecoin to maintain its value. Then, when the price starts to rise and the bear market starts to stop, they can switch back to the option of cryptocurrency again, hopefully at a lower price to get a larger amount. Although this requires a keen eye and strategic timing, it is the most risky of the three strategies shown here. Wrong exchanges can go wrong and cause significant losses.
In addition to these three strategies, Juliet has 3 parting tips for trading in the bear market:
- Don’t sell
- Buy more
- If you sell, buy back cheaper
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