update 18 August 2021

Five Tips to Trade in a Bear Market

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 a period of considerable growth. Most investors consider the bear market to be an indicator of a failing market and industry. But to a seasoned investor, the bear market represents an opportunity. Good assets come out of bear markets, and they’re usually ready for the subsequent bull market.

There are several strategies one can employ to trade and profit in a falling market successfully. The opportunity to make money is the same as in a bull market, if not more. Investors equipped with a set of 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.

Risk Management

Thousands, if not millions of ‘traders,’ have entered the market since the 2017 bull run. Many of them seemed to have gotten off to a fantastic start with technical analysis. Then, it didn’t take much time for them to lose all of 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 of utmost importance.

It is good to have a set of investing strategies handy before getting into the market. An investor must be sure about their Risk preference, portfolio ratio, and other important markers before settling in. One advisable management strategy could be to continuously re-balance one’s portfolio based on market trends. Consumer services such as Shrimpy allow one to balance portfolios in a preassigned ratio, among other services, in the stride to manage their strategies effectively. Other 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 certain about the current market trend. The word “trend” can mean many different things, but it is about being sure of the path the market is taking in this scenario. Trends can be categorized as either an “Uptrend” or a “Downtrend.” To be certain about the trend, you should look at various time scales, ranging from short term to long term. Once you are certain, market moves can be made accordingly to get the best outcome. Remember – “the Trend is Your Friend until the End”

In a downtrend, knowledge of derivative contracts such as futures can be really handy.

Learn about Crypto Futures

While volatile movements remove from 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 come in handy. A Future is a contract that 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.

BitMEX, CME Bitcoin Future, etc. are some of the major crypto derivatives exchanges.

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. Almost all “altcoins” show a high degree of correlation with Bitcoin’s movements. So, in times of downward trend, it is advisable to use BTC as a base pair instead of your native currency. Using BTC as the base comes with several advantages, the best of which is that, when the trend reverses, you would have more Bitcoin than when you previously started with.

Portfolio Diversification

Portfolio Diversification is one of the safest ways to crush through the Bear Market. Diversification can help mitigate the risk and volatility in a portfolio. In 2018, the Crypto Briefing Magazine published a report that supported claims that the correlations of altcoins with Bitcoin is quickly fading. This is due to assets becoming more independent of each other. Although diversification does not ensure profit or guarantee against loss, it is a trustworthy approach. According to a study conducted by researchers at Yale University, 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.

price change

In a crypto-only portfolio, diversification can mean allocating funds based on a token’s function. The functionality of tokens ranges from Utility to Security to Hybrid, meaning that each has a separate function of its own. It is an advisable strategy to allocate funds among different types of tokens based on each’s market dominance.

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