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Bear markets are brutal when they hit. Fortunately, they tend to be much shorter when compared to Bull Markets. But if investors are not well equipped strategically, a small drop will make them panic sell, which could wipe away all their savings.
A Bear market is any market condition that shows a downtrend after considerable growth. Most investors consider the bear market an indicator of a failing market and industry. But to a seasoned investor, the bear market represents an opportunity. Good assets come from bear markets and are usually ready for the next bull market.
One can successfully employ several strategies to trade and profit in a falling market. The opportunity to make money is the same as in a bull market, if not more. Investors with fundamental skills and strategies will guide them through the storm and help them make a fortune even when everyone seems to be losing.
Here’s a list of the Top Five Tips for Traders to successfully trade in a Bear Market.
Thousands, if not millions, of ‘traders’ have entered the market since the 2017 bull run. Many of them got off to a fantastic start with technical analysis. But, then, it took little time for them to lose all their money simply because of their lack of risk management. A good risk-managing strategy might be the difference between losers and winners in the crypto market. Due to its intense volatility and negligible correlation with traditional markets, managing one’s portfolio is paramount.
Having a set of investing strategies handy before entering the market is good. Investors must be sure about their Risk preference, portfolio ratio, and other essential markers before settling in. One advisable management strategy could be continuously re-balancing one’s portfolio based on market trends. Trading bots allow one to balance portfolios in a preassigned ratio, among other services, to manage their strategies effectively. Risk-managing tactics include position sizing, calculating risk to reward, and cutting off losses.
Be Sure about the Trend – Trend is Your Friend
The most important task for a trader is to be sure about the current market trend. The word “trend” can mean many things, but it is about being sure of the market’s path in this scenario. Trends can be categorized as an “Uptrend” or a “Downtrend.” To be sure about the trend, you should look at various time scales, ranging from short-term to long-term. Once confident, market moves can be made to get the best outcome. Remember – “the Trend is Your Friend until the End”
Knowledge of derivative contracts, such as futures, can be handy in a downtrend.
Learn about Crypto Futures
While volatile movements remove any asset’s appeal, a certain amount of swing creates trading opportunities. This is something that many traders and speculators have been taking advantage of, especially in the crypto market. This is where knowledge of Cryptocurrency futures comes in handy. A future contract allows you to hedge your position in case of market uncertainty. Using Futures, savvy traders can use the trend to either “long” or “short” crypto and earn profits. With futures, it doesn’t matter if it is the bull market or the bear, as long as one is smart enough to understand the market trend.
Use BTC as Base Pair
Although considered by many as “volatile” and “lacking fundamentals,” Bitcoin is still the spearhead of the crypto market. As of February 2020, Bitcoin single-handedly leads the market trend. Furthermore, almost all “altcoins” show a high degree of correlation with Bitcoin’s movements. So, in times of a downward trend, using BTC as a base pair is advisable instead of your native currency. Using BTC as the base has several advantages; the best is that when the trend reverses, you will have more Bitcoin than you previously started with.
Portfolio Diversification is one of the safest ways to crush through the Bear Market. In addition, diversification can help mitigate the risk and volatility in a portfolio. In 2018, the Crypto Briefing Magazine published a report that supported claims that altcoins’ correlations with Bitcoin are quickly fading. This is due to assets becoming more independent of each other. Although diversification does not ensure a profit or guarantee against loss, it is a trustworthy approach. According to a study by Yale University researchers, any portfolio should allocate at least 6% of its assets to Bitcoin. Due to Bitcoin’s market Dominance and sheer growth, a slight exposure to the crypto could do wonders.
Diversification can mean allocating funds based on a token’s function in a crypto-only portfolio. The functionality of tokens ranges from Utility to Security to Hybrid, meaning each has a separate function. Therefore, allocating funds among different types of tokens is advisable based on each’s market dominance.