Surviving a crypto bear market
Crypto bear markets can be tough on traders. 2018 saw quite a long bear market, resulting in traders and investors alike turning a loss.
Anybody can make a profit in a bull run, but it’s much more difficult to outlive the crypto bear market climate.
In this guide, we break down several ways you can stay warm in the harshest of crypto bear markets.
What is a bear market?
The term ‘bear market’ refers to when price action is down in a trading market. This is the opposite of a ‘bull market,’ which is when prices are on the rise.
You should not mistake price action looking ‘bullish’ or ‘bearish’ as an indication that we are in a bull or bear market. Prices can look bullish in a bear market and vice versa, and there can often be sudden price movements followed by swift retracements.
Mitigate against losses
It isn’t easy to make money in a bear market, but it is very easy to lose it if you are not smart about risk management.
Perhaps the two most common methods for mitigating against losses is by using either a stop loss or a hedge (you could also use both).
A stop loss is when you place an order to sell a security or commodity at a specific price before the value drops too much. You can add a stop loss in conjunction with your buy or sell order.
The stop loss will essentially ‘cash out’ if the market starts to move against you. You will make a loss if the stop loss is triggered, but it will not be anywhere near as bad as getting liquidated.
On the other hand, a hedge is an investment position where you purposefully place an offsetting position against your primary asset/security/commodity.
What this does is provide insurance in the event you are on track to record a loss.
You CAN make money in a bear market
Make no mistake, the price does not need to be heading upwards for you to turn a profit.
Making a trade where you believe the price will go up is known as going ‘long.’ However, you can go ‘short’ instead. Going short involves you trading with the speculation that the price will go down.
Effectively, when you go short, you will be using leverage on an exchange. This allows you to trade with more crypto than you actually have. You designate a price at which you will sell. If the position is successful, the exchange will receive the leverage back, leaving the remaining profit for you.
On this basis, traders aren’t necessarily interested in prices rising. It is all about price movement regardless of the direction.
This doesn’t mean trading is always viable. There are periods that are considered no trade zones. These periods are typically when price action is not moving in either direction.
Another method for earning money in a crypto bear market is known as ‘scalping.’
Scalping involves you continuously trading to make profit from incremental price movements. However, this method will require you to have a lot of free time since you will essentially be grinding over and over again.
When you are scalping, you will be looking for any price action that could result in you walking away from the position with a profit.
This could result in you placing anywhere between 10 to several hundreds of trades on minor price movements. The aim is to generate a large profit overall.
To be a successful scalper, you will need to be both fast and nimble. There isn’t a great deal of time to take it slow.
Scalping does have inherent risks, however. One bad trade could completely ruin any work you have done up to that point.
Keep your wits about you
The most important thing you can do in a bear market is keep your wits about you. Never rush into a trade as this is a recipe for disaster.
Always take the time to conduct research and ensure you are in a good position to trade. For example, look up trading charts or technical analysis to help you read the market easier.
Anybody who suggests you can only make money in a bull run is telling you incorrect information. You just need to know what you are doing.
We do not recommend any cryptocurrency, exchange, or project in particular, so be sure to do adequate research before committing to any decisions.
Interested in learning more about technical analysis? Discover more about support, resistance, and moving averages with one of our trading guides.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.