3 Crypto Bear Market Trading Tips
Bear markets are not fun, but there are ways to deal with it. Traders should beware of liquidity issues, cut off emotions and have a solid risk management strategy in place.
2018 has been a tough year for most crypto traders. Bitcoin has lost 54% of its value year-to-date. Other major cryptos such as Litecoin, Ethereum, Ripple didn’t fare any better.
There are many reasons for the downturn. Cryptos have been massively overhyped and a wave of unsophisticated retail investors entered the market after the bull run in 2017. When the tides were turning, panic set in and the new-born crypto enthusiasts abandoned their positions as quickly as they had entered the market.
Bad press, reports about fraud, security breaches and an uncertain regulatory environment have not benefited the crypto market either.
It’s hard to predict how long this bear market will last. In terms of price, we have probably neared our low, but this low could last for years; or we could see it turn around in a month. Crypto markets are highly volatile, and making predictions is difficult.
There are, however, strategies traders can apply to navigate the bear market. If you are a seasoned trader, you may know some of this already. If you are new to the field, consider these three tips:
1. Keep an eye on liquidity
Selecting the right cryptos is even more important in bear markets. You want to trade cryptos that are popular and come with high liquidity, such as Bitcoin, Litecoin, Ethereum, etc. You also want to trade on exchanges that offer high liquidity.
If you trade cryptos with high liquidity, there will be more herd behavior. Cryptos with higher volumes are more likely to bounce at support areas and more likely to reverse once they reach the resistance area.
Lack of liquidity makes it harder to read buy and sell signals, and trading will become more of a gamble.
2. Cut off emotions and do your research
That’s fundamental trading advice whether we’re in a bear market or a bull market. Keep your emotions in check. Blind hope for a recovery, FOMO, and sell-off panic have rarely done a trader any good.
Especially in crypto markets, it’s easy to get lost in wild speculations. Just because some influencer claims crypto X will disrupt the insurance industry, doesn’t mean it’s actually going to happen.
Be especially aware when participating in ICOs. Read the whitepaper carefully, research the management team, reach out to other investors and ask for advice.
It’s better not to listen to hypes and instead do solid research. There will always be at least five different opinions, you should read all of those. Eventually, it doesn’t matter what you believe in, it only matters what the market does.
3. Manage your portfolio’s risk
You can hedge your portfolio against a downturn, erasing at least some of the risk.
One of the easiest ways to do this is to overlay your portfolio with a bitcoin short position. A drop in value of your portfolio will then be partly offset by the profit from your bitcoin short in case the market declines.
As retail investor, you could short Bitcoin using an online CFD broker such as eToro. CFDs work the same way as futures but are tailored towards retail investors. You can bet on a decrease or increase in the price of Bitcoin, without owning it.
Some crypto exchanges allow traders to short Bitcoin, for example Kraken or Bitfinex. It works the same as shorting Bitcoin using CFDs, but when doing it directly via an exchange you will receive the difference in Bitcoin as opposed to USD.
INVAO has a distinct advantage. Our trading strategy is based on arbitrage trading. It doesn’t really matter for us if the market goes up or down, arbitrage trading works both ways. We generate profit due to asset mispricing on and between exchanges. Price movements are not relevant.
So, if you are unsure about what to do in a bear market, a good way might be to invest in our token … which brings us back to point #2: Always do your research. You can find our whitepaper and company profile here: www.invao.org. Take a look.
