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4 important Things to Do in a Crypto Bear Market


4 important Things to Do in a Crypto Bear Market to avoid losing your money.

4 important Things to Do in a Crypto Bear Market

It's not easy to keep your blood cold, as crypto assets suffer double-digit losses. But don't hide your head in the sand; instead, take these simple actions to take advantage of this bear market opportunity.

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The crypto market sees double-digit percentage losses as Bitcoin (BTC) briefly dropped below $30,000 on May 9, 2022, for the first time since July 2021. TerraUSD (UST) and LUNA have many investors. understandably worried. But that doesn't mean you have to give up and run from the markets.

So what should you do instead?

1. Buy crypto drop using average dollar cost

  • It's all too easy to be on the wrong side of a crypto trade when the markets get extremely volatile, but that doesn't mean you have to sit back and watch your portfolio drop hourly.
  • Investors who hold fiat or stable-coin reserves or have capital in their bank accounts will have the option to “buy on the dip. This common phrase used in the crypto industry refers to the practice of buying some cryptocurrency when there is a significant negative correction in the market.
  • The idea is that if prices return to their previous levels, bearish buyers can make a nice profit. It echoes the notorious sermon of stock market legend Warren Buffett who once said, "When there's blood on the streets, you buy."
  • While buying the dip can be done in a single trade, the most recommended strategy is to apply what is known as the "Dollar Cost Average (DCA)". This includes dividing your reserve funds into smaller slices and making multiple trades over time.
  • For example, let's say you have $1,000 in reserve money. A good DCA strategy would be to divide the amount into five $200 increments or even $10100 increments and trade using these smaller amounts.
  • The idea behind this is that it's incredibly difficult to know exactly when an asset has bottomed (hit the lowest price before returning), so it's often better to buy a small amount and wait, rather than spending all your money just once. See if the price of the asset drops further. If so, buy some more, etc.
  • Doing so often yields much better results than if you had invested all your capital in a single trade - unless, of course, you were lucky enough to put everything together at the perfect time.

2. Use indicators to find the best buy zone

For traders with a basic or superior understanding of technical analysis - the practice of predicting an asset's price movements based on chart trends, indicators, and patterns - it is possible to use certain indicators to assess when an asset has bottomed out.

Of course, no indicator is completely foolproof, but they can often give you a strong signal of when to buy a bottom.

A popular method is to use the Relative Strength Index (RSI) indicator – a momentum oscillator characterized by a channel and a swinging line inside and outside it. There are two key elements in this tool:

Overbought: When the indicator line crosses the channel, the asset in question is considered “overbought” – in other words, overvalued – and usually signals that prices will fall again soon.

Oversold: When the indicator line falls below the channel, the asset in question is considered "oversold" or undervalued and usually indicates that prices will rise soon.

While these two signals can be used to good effect on their own, they cannot always accurately predict lows or highs, especially on shorter timeframes such as the four-hour, hourly, or 30-minute options. A better method is to use the RSI divergence strategy.

One thing to note about the RSI is that it usually follows a similar pattern to the price of an asset; this means that when the price goes down, the line of the RSI indicator also goes down. However, there are times when the two lines move in opposite directions. This is known as the RSI divergence and usually indicates the beginning of an r trend reversal.

To spot a bottom, you need to see if the RSI line rises while the corresponding price falls. Ideally, the RSI line would be near or in the oversold zone on a longer timeframe, such as the daily, to signal a strong reversal opportunity.

Below, we can see an RSI divergence on the bitcoin daily chart (A) pointing to a price increase after a strong reversal in the trend. Three months later, another RSI divergence emerged, this time in the overbought zone (B), signaling a reversal of the downtrend that soon followed.

3. Diversify your investments among different crypto assets

Just as it is nearly impossible to accurately predict the bottom of a bear market, it is also impossible to know exactly which of the 17,000+ cryptocurrencies will either rebound the fastest or continue to rebound the highest.

One way to protect your bets is to use DCA for a number of different crypto assets. This may involve shrinking your trade sizes even further, but in doing so you reduce your overall risk. Of course, choosing random crypto assets and investing in them is not enough. You will first want to do rigorous due diligence on every crypto asset you are considering buying and look for:

  • Previous all-time high: No crypto is guaranteed to return to an all-time high, but this can give you an idea of ​​what kind of potential the asset has.
  • Past Performance: Examine the asset's price history using tools like TradingView and see how well it survived previous crashes. Is it highly correlated with the rest of the market or does it consistently outperform other top assets? Past performance doesn't guarantee future price effectiveness, but it still gives you a rough idea of ​​what's possible.
  • Upcoming Roadmap Announcements: One of the things that can help an asset recover is when a major update or roadmap enhancement is coming. These could include things like a brand change, mainnet launch, or a new partnership.

4. Don't Panic sell

It may seem easy, but managing your emotions in bear markets is not as simple as it seems. In fact, it is often described as the hardest thing to master when learning to trade professionally.

The famous American economist Benjamin Graham once said: “People who cannot control their emotions cannot profit from the investment process.

An important step is to recognize that fear and greed are powerful motivators and can lead to making quick decisions that often result in losing trades. Having a concrete plan in mind before making a trade can mean the difference between making a profit or losing money. It could simply be saying, “When I see a bullish RSI divergence on the daily chart, I will allocate X amount to the trade and take profit on Y”.

Making a profit is another seemingly easy but incredibly difficult thing to master. Greed can often keep you trading above your profit level in the hope that the price of the asset will rise even higher. This increases the risk that the trade will move against you, especially if you don't set a stop loss.

The crypto market is incredibly volatile and you might be disappointed if you miss the opportunity to buy the bottom this time around, but another crypto crash could be on the horizon. Make sure you take profits, make sure you have some capital in reserve for accidents, and remember to keep your cool when the bears come.