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Bear market trading strategies for digital currency traders
Due to the characteristics of digital currency and the large-scale price fluctuations that often occur in the digital currency market, a bear market may also come at any time. In order to maximize profits when trading in a bear market, here are several trading methods.
What is a digital currency bear market?
A bear market is usually defined as when market prices fall by 20% or more. The 20% decline is not fixed. Bear markets often cause prices to fall sharply, even if there is good news in the market, investor pessimism and low confidence levels may cause prices to fall further.
Bear markets often occur before economic recessions. Economic figures such as sluggish employment, slow wage growth, high inflation, and sharp changes in interest rates may lead to bear markets. In the digital currency world, these factors can also cause sharp price changes. Whether the government bans digital currency or introduces stricter and more complex KYC requirements and other development trends will also cause prices to fall sharply.
Here are a few trading strategies that can be used to maximize gains and/or limit bear market losses:
Adopt Dollar-Cost Averaging
Dollar-cost averaging is when you invest a fixed amount of money at fixed intervals, such as investing $100 in a certain commodity or token every week or every month. By doing this, you do not have to time the market. You essentially hedge between the market falling further after you buy and being able to enter at a lower price point by buying before the market rallies.
By diversifying your holdings, you enjoy the benefit of potentially having a few winners amongst many losers in a bear market. Not all industries, tokens, or platforms will perform badly or fall in price during a bear market. For example, with traditional stocks, even if the market is slumping, some industries may do well, as we saw with the home industry even though the rest of the market was falling due to the pandemic.
Similarly, when it comes to cryptocurrencies, some tokens and platforms such as Layer-2 solutions may do well when other projects are doing badly. This recently happened when projects such as Polygon and Loopring enjoyed considerable success when the rest of the market was suffering from high gas fees, congestion, and falling prices.
Buy and Hold for the Long Term
Remember that you are in the game for the long run. Bear markets are simply a test of your patience, and too many “weak hands” fold in bear markets. The statistics show that many “whales” accumulate high-cap tokens such as BTC and ETH during bear markets when prices are low since these players expect prices to eventually rise. By buying during the bear market, they can buy low and hold before prices rise again. Adopting a similar strategy is just as beneficial for smaller players as it is for savvy, well-funded institutional players.
Do Your Research to Identify Opportunities
Finally, one of the best strategies for bear market trading is the same as general investing at other times: identify promising opportunities and buy into them. First, do some research on past bear markets to identify the sectors, tokens, or projects that went up or maintained prices during prior bear sessions and invest wisely a proportion of your money in those projects. Second, identify promising projects that are expected to do well over the long run and invest in those as well. Bear markets do not last forever and if you can correctly pick a promising project that will deliver benefits to users, market prices will eventually pick up for those projects and you can make handsome returns by having bought low and selling later at a higher price.
Identifying the Onset of a Bear Market
You can use a number of indicators to predict when a bear market may begin.
First, look at interest rates. To encourage borrowing and investment, the Federal Reserve lowers interest rates when it expects the economy to slow down. This is a sign that a bear market may soon be on its way.
Second, look at trend lines. If short-term moving averages of several tokens or industries are headed downward, this may indicate that a bear market is on its way.
Finally, even though this measure is more about short-term corrections than a true bear market, if a token is overbought, you can use these figures along with RSI (relative strength index) numbers to predict that a correction is due. In the crypto space, corrections can be as high as 15-20% or more, which is as high as the price falls seen in bear markets.
StormGain and Cryptocurrency Trading
StormGain was founded to make it easier to invest in and track a wide range of cryptocurrencies. With advanced and easy-to-use trading tools and access to many popular tokens and assets, StormGain helps investors participate in and invest in many different crypto projects and platforms with the potential of earning returns using different trading strategies.
Whether you’re looking to diversify your portfolio, learn about different projects, or generate income using trading strategies of your choice, StormGain can provide you with the liquidity and access you need to succeed.