Best Crypto Strategies in a Bear Market

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Coinrule

6 min readJan 28, 2022

Crypto investments can be frightening when you face a bearish market. You may not know how long the market will take to bounce back. However, with some good strategies, you can protect your portfolio and even make some returns.

It is no news that the crypto market is very volatile. Despite the volatility, the market conditions will either be bearish or bullish. However, a bear market can be scary for cryptocurrency traders and investors, as the value of most crypto often suffers and face large losses.

What Is a Bear Market

The bear market generally means that market prices head downwards. Actually, it is defined as crypto prices dropping by at least 20% from historical averages for a longer-term period. Bear market prices can fall by more than 20% from their latest high and the bear will continue until prices rise by 20% from their lows.

The bear market generally starts with a downward trend. It can be a short or long-term Bear and last for weeks, months, years, even decades. As prices continue to fall, traders lose confidence that prices will recover at the same time, resulting in further declines. Crypto’s last long bear from 2018–2019 claimed many a scalp of a trader and many more left exhausted, believing that prices will never recover. The mental health toll of a bear market can be high. Despite the bear market’s negative image, it can actually be a great place to improve your trading skills and actually improve your crypto portfolio positioning.

Best Strategies to Protect your Portfolio in A Bear Market

Here are some crypto strategies for the bear market to protect your investments:

1. Pick the Right Coins to Invest in Gradually

Despite the high-risk levels in the Crypto market, it remains the market that provides the most promising growth opportunities in 2022. Bitcoin is the most popular cryptocurrency, but there are many other coins that you can consider. Diversifying your portfolio in a bear market can be a good move.

However, rather than buying coins all at once, there are suitable strategies for minimizing risks. One of which is the Relative Strength Index (RSI) based dollar-cost averaging (DCA) strategy. It is a method of dividing the investment over time. You can use an RSI based DCA strategy for long-term investments.

The rules of this strategy:

· Buy only when the RSI falls below 30 in the 4-hour timeframe.

The strategy determines when prices are oversold and have a higher possibility for recovery. It takes advantage of the weakness of coins by buying them when they are oversold.

Here are some backtesting results of 2021 for the most popular coins:

2. Rebalance Your Portfolio to Take Advantage of Volatility

Your portfolio will become a disaster eventually if you don’t try to rebalance it. When price volatility is high, a rebalancing strategy can help you to seize more opportunities and rebalance the portfolio.

The rules of this strategy:

Buy worst performing coin in your portfolio by 24hr price change and then sell if the price changes 2%
Sell best performing coin in your portfolio by 24hr price change and then buy if the price changes 2%

You can run this strategy with other rules if you like. You can also choose among your preferred coins. However, this strategy can have drawbacks such as transaction costs, spreads, etc. However, with proper discipline, you can reduce portfolio risk while minimizing costs.

3. Take Advantage of the Periods of Low Volatility with Grid Strategies

A coin with frequent ups and downs will almost certainly be a viable option for Grid Trading Strategies. This strategy helps to take advantage of low volatility with relatively low risk when coin price is moving sideways.

With this type of strategy, you can create profit from a range market. You can set the price range in which the strategy will execute the orders.

Set the price range according to your desired pips, like 10 or 20 pips — and trade between your set price range.
Or place buy and sell orders at a specific percentage. The rule is set to use a percentage that is slightly lower than half the price range. For example, if the price range is 5%, you can place the orders at 2% to execute the orders.

You can select various pips and percentage values according to your preference. This strategy is effective when the coin price is within a clear range. But it is not effective if market prices are constantly moving in one direction.

4. Sell Your Coins to Buy Them Back at a Lower Price

Price Swing strategies aim to capture short-term volatility in coins and buy them back at lower prices. This strategy only takes place if the price moves within the channel for a long period of time. The channel refers to the price range within which the coin is trading in-between the boundaries of two lines at the same angle of the trend. If a momentum trend or breakout pattern is occurring, this trading strategy will not be effective.

The RSI is a simple and easy-to-use momentum indicator. So, you can use it for this strategy. The rules of this strategy:

Buy when the RSI is lower than 30 to 35 in times of uptrend.
Sell when the RSI is greater than 60 to 75 in times of downtrend.

You can sell the coins you already own and buy back the same amount later. This method allows you to add value to your wallet without increasing the overall exposure of your wallet by buying new coins.

Conclusion

The end of 2021 was overall pretty positive for crypto, but 2022 has started of poorly and looks to turn into a really unpredictable year. Cryptocurrencies have a cycle of rising and falling in value. But as we have seen many times, a decline is often very rapid. Therefore, if you believe in the long-term growth of crypto, you now have the opportunity to buy your favorite crypto at a very low price.

It could be a good opportunity to build a controlled portfolio with a view of long-term crypto investments. Moreover, knowing the signs of a bear market can help you develop a portfolio strategy with lower risk that meets your financial goals.

What is Coinrule

Coinrule allows you to create trading rules that run automatically across your favorite exchanges.

With Coinrule you can easily develop your own trading rules and strategies and set them up to run automatically. It is the “if-this-then-that” for cryptocurrency trading that allows you to plan your crypto trading rather than having to sit for hours in front of charts. Best of all? No coding skills are required, meaning anyone can use Coinrule.

DISCLAIMER

I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.