How to make money in crypto bear market
The market does not always go upside. There will be times when the market will keep falling. And if you are into crypto trading, you don’t really want to lose your investments and get the most out of your investments. So the question is, how to make money from the crypto bear market?
Well, the year 2020 was quite positive for the crypto market. But since 2021, there has been a bearish trend. However, the cycle of this bullish and bearish trend runs on a cycle. While trading in a bullish market is easy, below are a few points that will make crypto trading in a bearish market easy too:
What is a crypto bear market?
Bear market is referred to a time period when the prices of cryptocurrencies are falling significantly. During this time, the supply of crypto coins is greater than demand, and there is low confidence among traders. Hence, no one is taking buying trades and wants to exit the market by selling their assets.
Bear markets can be extremely difficult to trade if you are an inexperienced trader. Also, it is pretty hard to predict when the bear market will end and when the bottom price has been reached.
Although, a bearish trend in the stock market is a bit easy to figure out. Because a drop of 20% can be considered a bearish trend, but for crypto, we get to see a 20% drop in a day only.
How to Make Money In Crypto Bear Market?
1. Don’t panic sell
First of all, don’t ever panic sell. I know when your portfolio goes all red, all you want to do is make an exit as soon as possible. But if you don’t really sell your assets, you are not really making a loss.
Whenever you are investing in crypto, make sure you have figured out your loss taking capabilities. Also, always invest the money that you can afford to lose. Plus, remind yourself why you invested in cryptocurrency in the first place.
The Crypto market is extremely volatile. After a sudden drop, the price can rise up again. So wait for that moment, or you can swap your tokens for any other token which is in the uptrend. This way, you can recover the amount you have lost.
2. Yield farming
Yield farming is a kind of staking where you lock your cryptocurrencies on a platform and earn interest in them. However, yield farming interest depends on different factors. For instance, how much you are staking, the token’s popularity, and your fund’s lock-in period.
So when the market is in a bearish trend, you can transfer your funds to a yield farming platform and start earning interest on your holdings.
Similar to yield farming, staking is also one of the ways to earn rewards against your crypto holdings. In this case, too, you will need to lock in your crypto assets for a specific time. But, your crypto is not used for lending to earn interest. Instead, staking uses your assets to validate transactions on a blockchain network. This is known as proof of stake or PoS mechanism.
By staking, you’re essentially telling the network you’re willing to keep your device connected and validating transactions.
The more amount you stake, the higher chance you have to get the opportunity to validate transactions and the more rewards you earn.
4. Consider buying the dip
In crypto, there is a saying that buys the dip. A pretty common phrase that you get to hear across social media. The main idea behind this is to buy crypto at a lower price and sell it at a higher price later on.
Buying the dip isn’t suitable for everyone. For beginners, the moment you buy the dip, the price may drop further. Hence, a recommended step is to buy dips in smaller stages.
For instance, every time there is a 10% to 20% drop, buy 5% to 10% of your preferred coin.
When you are buying the dip, there is a very good strategy that you can use. This strategy is known as dollar cost averaging or DCA. It is one of the recommended strategies that involves breaking up your reserve funds into smaller amounts and making several trades over a span of time.
For instance, if you have $1000 to invest. A good DCA strategy would be to break up your funds into five smaller funds of $200 each or ten smaller funds of $100 each. And you should place your trades using those smaller amounts.
However, you should not also consider that crypto is on sale, and you should buy it by spending all your money. Always focus on risk management and invest the money you can afford to lose in crypto.
5. Margin trading
Margin trading is the act of trading crypto with money you have borrowed from another trader. This means that profits and losses are multiplied by how much you have borrowed in the first place. This process is called leverage, and it can be a great way to get some extra funds.
The good and bad part of this is that if you make profits, the profit will be pretty high. But similarly, if you lose, you have to take a bigger loss.
However, leverage is only recommended to experienced traders. It helps you to increase your profit. But if you don’t know how to trade, The Money Mongers has a guide on How to Leverage Trade Crypto which can be helpful. Though remember margin/leverage trading is risky, you might end up losing all your money so move ahead with caution.
6. Scalp trading
Just like margin trading, scalp trading is also recommended for experienced traders only. In this trading type, you are taking advantage of the small daily movements of various altcoins. You want to focus on more volatile currencies. Also, have a deeper knowledge of technical and fundamental analysis.
As you start understanding the trading partners of various coins, you take trades at a more accurate level. You are taking small trades and not holding onto your assets for the long term.
This way, you won’t be making a huge profit from a single trade. But if you trade about 50 times a day, the profit will be greater.
This pretty much represents what a day trader does, and it involves executing hundreds or more than hundreds of transactions each day.
7. Use indicators to find the best entry point
You should also use the right indicators to find the best entry point. If you are an absolute beginner, I would recommend you first get started with technical analysis and play with different indicators. This will help you to understand how the market moves.
However, you should also know that no indicator is completely foolproof. But they give you strong signals about when to buy a dip or sell.
One of the popular indicators is the Relative Strength Index or RSI. It is a momentum oscillator characterized by a channel and a line that oscillates in and out of it.
The indicator has too key points:
- Overbought: It is “overbought” when the indicator line crosses above the channel – in other words, it is overvalued – and usually indicates that prices will fall back down soon.
- Oversold: If the indicator line breaks out beneath the channel, the asset in question is considered oversold or undervalued and usually signals a rise in prices.
These two signals give you a good amount of idea to predict the next move in the market. But a single indicator doesn’t always give you the right information. You need to use different indicators, and only then should you make a decision.
So a good step would be to start learning technical analysis, different trading strategies, and the use of different indicators.
So that was all about how to make money from crypto bear market. As a beginner, you should learn different trading strategies, diversify your portfolio, be aware of different crypto projects. So you can invest your money at the right time to make profits.