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Cryptocurrency has been a hot topic for the past few years, and there are many people out there who are trading Bitcoin and other cryptocurrencies as a side hustle or as a full-time job. In the past couple of years, we have seen a big surge in the number of traders in the crypto market. In the Q3 of 2020, Bitcoin entered a bull market, and in the following months, cryptocurrency became a popular topic on both mainstream media and social media.
Many new traders entered the crypto market during this time and got accustomed to the bullish ways of trading the market. However, things are changing now as BTC seems to be headed towards a bear market for a while now. In the financial markets, it is generally said that making money in a bull market is the easiest thing. The challenges arise when the market gets bearish, and that’s where good traders survive.
A trader who can do well during a bear market will excel during bull markets. The volatility, unpredictability, and risks that come with the bear market pose new challenges. In this article, we will discuss some useful and proven tips that can help traders navigate a bear market. Once you have read this piece, you can sign up on ByBit and start trading with a special signup bonus by clicking on our link below.
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What is a Bear Market?
A bear market is in effect when the price starts moving within a downtrend over a stretched time period. During a bear market, the supply of an asset exceeds its demands as most investors try to sell their holdings. Buying and selling any asset during a bear market is a lot trickier.
Bull Market vs Bear Market
Here are some important points that can help you understand the difference between a bull market and a bear market.
- In a bull market, the price moves in an uptrend, and the demand is usually higher than the supply.
- Bull markets are easy to navigate as the probability of uptrend continuation is always high. Patient investors are always rewarded.
- Bear markets don’t last as long as the bull market.
- Many investors accumulate assets they are fundamentally bullish on during a bear market.
- Assets can fall dramatically during a bear market which is one of the reasons why it is hard to navigate through it.
A bear market is part of the cycle, and it can be triggered for several reasons. Mostly, bear markets start when the markets are inflated or the demand starts decreasing. Weak fundamentals can also trigger a bear market in some scenarios.
Tips to Get Through a Bear Market
Here are some of our top tips that can help you navigate through a bear market:
1. Assess Your Options
Prices can fall dramatically during a crypto bear market, so it is quite important to stay calm in such situations. The first thing you need to do is assess your options, and that can be done by laying out your goals.
Determine whether you want to invest in the cryptocurrency long-term or just want to make some quick money with trading. Having clear goals will allow you to navigate better through a bear market. Once you have your goals defined, your options will be clear to you, and you will just need to follow them to avoid losses during a bear market.
2. Don’t Short too Often
Most traders who are entering a bear market for the first time have the idea that they can make good money by shorting Bitcoin or other cryptocurrencies. “Shorting” refers to betting against the price of the asset, which means if the price falls, you can benefit from the position.
However, it is not as simple as it appears to be. Short positions are a good way of making money in a bear market, but you have to have several confirmations for your trade before making a move. Also, if you are placing a short, you are also risking liquidation. If the price goes in the opposite direction, you can end up losing all your money. That is why one needs to be careful when it comes to shorting cryptocurrencies.
You don’t necessarily need to short assets to reap the benefits of a crypto bear market.
3. Understand the Present State of Market
How you get through the bear market also depends a lot on how well you are aware of the market. It is important to stay up to date with the fundamentals and technical of the market so you can make moves before it’s too late.
Look for support levels that are holding strong and where the volume is also high. Try to understand the buying and selling behavior by consistently monitoring the charts. Also, stay up to date with the news and how much the crypto space is progressing in the real world.
Keeping track of regulations and laws surrounding crypto is also crucial. If you are aware of all the things happening at present, you will always be able to predict the market better and make wiser decisions.
4. Don’t Try to Time the Market
Another mistake many traders make during a bear market is that they try to time the bottom. Keep in mind that it is almost impossible to time a bear market bottom. It does not matter how skillful you are as a trader; you can never predict the bottom accurately.
Many traders will try to time the bottom and will end up investing all their amount at a certain level. In most cases, the price will drop further, and the investor will lose significant value over their investment.
You can also read our guide on how to short Bitcoin by browsing over to the highlighted text.
5. Buy in Parts – Dollar Cost Averaging (DCA)
If timing the bottom is difficult, how can one go about investing during a bear market? The answer is simple! You invest by following a method known as Dollar-cost-averaging (DCA). DCA allows the investor to buy a chunk of an asset at different levels.
For example, if Bitcoin has dropped to $20K, you can invest a percentage of your investment at this level. Later, when it drops to $18K, you can buy more and get an even better price; similarly, if the $20K turns out to be the bottom, you can buy more at $22K.
DCA ensures that you are not investing all of your money at once. It is always the safest option, and if you take out the average buying price for your asset, it would still be quite low if you strategize it properly.
6. Don’t Be Afraid to Invest in Projects You Trust
If there are certain cryptocurrencies out there that you have strong faith in and have done plenty of research on, then you must not be afraid of picking them up during a bear market.
During bear markets, most altcoins lose 80% of their value and can fall really low, shaking the trust of the investor. Even though it may seem like an end for that project, you must not hesitate to pick a chunk if you have confidence in that certain cryptocurrency.
You can also go with a low amount so that you don’t lose much money if you are wrong. On the other hand, if you are right, the upside is quite high. It is more of a high-risk, high-reward strategy, but if you have done your research on the asset, it might not be a bad pick at all.
Conclusion: Bear Markets Don’t Last Forever
Bear markets can have the investors worried, but they do not last forever. Things look bleak during a bear market because the price is consistently falling all the time. However, if you follow all the right steps and study the market carefully, you can also benefit from the bear market. The majority of traders are quite good at navigating through a bull market. But a trader who can also navigate through a bear market will be more successful in the long term. The key to getting through a bear market is to not panic and learn things along the way.
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