Learn to Trade Crypto in the Bear Market

From learning how to use crypto trade management tools to understanding how investments evolve in this period, trading in the bear market can be profitable, especially if you manage to keep your emotions in check.

If you want to make a profit from crypto in the bear market, here is what you should know.

What is a Bear Market?

You’ll find several definitions of a bear market if you research the internet. Here we provide the most commonly accepted one. A bear market is a market that fell 20% from its high for a period longer than two months. During this stage, the prices usually drop and stay at a lower level for an extensive period (the bear market can last from a couple of months to years, and when it prolongs over the years, it usually has a negative effect on the global economy).

High levels of volatility characterise the market in this phase because investors sell their assets as they’re worried about their prospects. This kind of behaviour usually causes prices to fall even further.

Several factors cause a bear market, but very often, it’s resulted from economic uncertainty.

There are three kinds of bear markets: structural, cyclical, and event-driven. Structural markets are resulting from long-term economic issues (demographic changes, declining productivity) and last for a couple of years. Cyclical markets are the direct result of the economic recession that forces organisations to limit their investments and spending, and last around one or two years. Event-driven markets result from a specific event like a financial crisis or natural disaster and usually last less than a year.

Can You Predict When the Market Enters the Bear Phase?

It’s challenging for beginner traders to predict when a bear market is approaching because, most times, the turn from a bull or neutral phase to a bear one is quick. You can use technical analysis to evaluate the market and identify the signs and signals that show that the prices are about to drop. It’s wise to use the Wyckoff method to understand how a bear market forms because it describes how bull markets function and reverse into bear markets.

Trading Strategies for the Bear Market

Here are some actionable strategies you can use to gain profit in the bear market.

Diversify Your Portfolio

If you opened a wallet with Binance to trade in the bear market, it’s wise to diversify your portfolio because some cryptos may get hit harder than others. Crypto experts reveal that a diverse portfolio enables investors to minimise their losses and take advantage of gains in any kind of market.

When trading digital assets, it’s best to spread your investments across all large-cap market leaders and add both established and new cryptos to your portfolio. Also, it would help if you didn’t ignore investing in stablecoins, DeFi-related coins, NFTs, and other similar assets. Diversification can cushion a crypto portfolio against losses because some digital tokens are expected to value more than others.

Avoid Volatility

During bear markets, crypto investors turn to digital currencies that are proven to retain value better over time. You can transfer a portion of your holdings to cryptos like Ethereum and Bitcoin, which are popular worldwide and known for performing well in the market. However, the bear market is also the ideal opportunity to purchase a series of assets you want to add to your portfolio for a long time because their prices drop, and they’re more accessible to your budget.

Keep an Eye on Growing Market Segments

If you research the market closely, you’ll notice that some digital currencies retain value even during the bear phase. They are usually associated with market segments that register significant growth. For example, the digital tokens used in online gambling and the video game industry maintain their value in all market stages.

It would be best if you also focused your attention on cryptocurrencies associated with cross-chain communications, fan-based NFTs, coins associated with DeFi, and other similar applications. However, before adding them to your investment portfolio, gain knowledge about the operations in these particular market segments.

It’s also wise to analyse the performance of the tokens you want to trade during previous market stages because some have a history of gaining value during bear markets.

Use Indicators to Identify the Best Entry Points

Suppose you have a basic or higher understanding of technical analysis and can predict a cryptocurrency’s price movement using patterns, indicators, and chart trends; you can rely on these indicators to determine if an asset is about to reach a bottom. However, bear in mind that no indicator is completely foolproof, but most can tell you when to buy a dip. You can use the Relative Strength Index which relies on two elements:

– Overbought – tells you that the crypto’s price is about to fall back down soon.

– Oversold – tells you the prices will rise.

This Index effectively predicts tops and bottoms but unfortunately doesn’t work well for short time frames. If you want to predict crypto price fluctuations within an hour or less, employ the RSI divergence strategy.

Don’t Freak Out

While this might be a no-brainer for a seasoned crypto investor, it can be challenging for a beginner to manage their emotions during bear markets. It’s often the most difficult thing to do when you see that all prices are going down. However, if you fail to master your emotions, you’re ill-suited for trading digital currencies. Don’t let your fear impact your judgement, but create a concrete plan to place trades and identify the strategies that could help you make a profit.

As you already know, the crypto market is quite volatile, and you shouldn’t be too harsh with yourself if you miss the opportunity to buy the dip during a particular moment.

Researchers say that the average bear market lasts less than 18 months, so all investors should be ready to hold their assets for over 5 years to gain profit.