The recent downturn of the crypto market has many stakeholders concerned. Double-digit losses have investors worrying about how they would liquidate crypto assets without taking heavy losses. No one likes to be out of the money (OTM), but it doesn't mean you should ignore the bear market.
If you are in the red (your crypto assets are valued less than what you paid for them), you shouldn't just throw in the towel, and if you are a new investor, now is the time for action.
4 Things to Do in a Crypto Bear Market
Bear markets are a part of crypto trading, but they don't necessarily have to be a bad thing. Here are four things to do in a crypto bear market.
Use Dollar-Cost Averaging (DCA) to Buy the Dip
You may have heard the popular saying "buy when there's blood in the streets," but most people forget the second part of this quote by Baron Rothschild. It goes, "buy when there's blood in the streets, even if the blood is your own."
In modern terms, this means "buy the dip," even if you are in the red. Buying the dip is a common practice in crypto trading, where you buy cryptocurrencies at low prices in a bear market. Whether you are a new investor or a veteran, you can buy the dip if you have expendable capital.
It is always smart to have a reserve of stable coins or fiat currencies to buy during a bearish market in crypto trading. A reserve allows you to make a decent profit when the market corrects itself or returns to previous peaks.
However, you shouldn't just buy the dip in a single trade. After all, you can't be certain whether the market will continue to drop or pick up immediately after you buy. Here, dollar-cost averaging (DCA) is a great low-risk strategy to buy the dip.
DCA means splitting your reserve into smaller parts and buying at intervals over time. For example, if you have a reserve of $1000, you can split it into ten $100 trades and enter at various price points as the market drops.
This strategy helps solve the issue of not knowing when the market reaches its lowest point. If you put the entire $1000 in a single trade, it may not work out well. On the other hand, you can buy a small amount with DCA to check if the market drops further. If it does, you can buy some more.
This strategy gives you a smarter and safer way to buy the dip than spending all your reserves in one go. It is also great for new or first-time investors entering a bear market.
Don't Enter Blindly
DCA is not the only strategy to apply in a bear market because it wouldn't make sense to buy blindly. Instead, you should look at charts, patterns, and trends. Use indicators to help you analyze crypto assets before choosing your entry point.
Such technical analysis is not easy and never foolproof, but you don't have to be a professional crypto trader, investor, or have great market insights to do some basic analysis. For example, certain technical indicators show key information to help you predict when the market may bottom out.
One commonly used indicator is the Relative Strength Index (RSI), which shows you when an asset is oversold or overbought in the market. If a crypto asset is oversold, it is undervalued and may rise soon, whereas overbought indicates the opposite.
This indicator works well in higher time frames, greater than 24 hours, and you can spot a trend when there is a divergence between the asset price and the RSI indicator. However, this is not the only indicator you should use.
There are many such technical indicators that you can study to predict optimal entry points for your crypto trading. Just remember, no indicator or group of indicators show exact outcomes. They indicate upcoming trends to help you better assess risk.
Diversify Your Crypto Portfolio
Markets, including a bear market, are complicated and similar to how you can't ever know for certain when it'll bottoms out. You also can't know for certain which crypto asset will boom or bust. Hedging your bets while building on your DCA and technical analysis strategy is also ideal.
You may need to split your reserve more or stretch it a bit, but diversification is one of the best ways to reduce risking your overall investments. You can use DCA and indicators on various cryptocurrencies. However, you have to thoroughly research before choosing assets to invest in.
An easy way of researching is checking a crypto asset's previous all-time high. This information will tell you what kind of potently the crypto asset may have once the bear market turns into a bull market. Similarly, you should check how well the assets recovered during previous bear markets to gauge their overall performance better.
Most importantly, however, you should research each crypto asset and learn about its upcoming updates like partnerships, mainet launches, or major developments. A roadmap can help you better assess what the crypto asset's future may look like.
It is important to fully understand roadmaps because regardless of the ongoing market, you only want to invest in crypto assets you think will do well in the long run.
Keep Calm and Persevere
Bear markets can be severely disheartening, especially if you are currently in the red and watching your assets drop by the hour. However, you shouldn't let your emotions get the best of you.
If you give in to fear, you might make harsh, knee-jerk crypto trades and end up incurring heavy losses. A great way to overcome fear and make profits is to have a solid plan for your crypto trading. Something as elementary as clearly defining your entry and exit points before investing in an asset can help improve your crypto trading strategy and profits.
Traders often become greedy and stick to a rising asset beyond their planned exit, hoping it will continue to rise. This is not always the best approach, especially if you don't set stop losses. Just because you buy the dip now does not mean there won't be a bear market ahead.
Hence, you need to have an exit point to cash out on your profits. You need to plan when to take profits, maintain reserves for future market crashes, and keep calm during bear markets.
Crypto markets can be quite volatile, and bear markets don't last forever. If you are currently in the red, it doesn't mean you'll be OTM forever. It especially doesn't mean that you can't do anything about it. Use your reserves to buy the dip sensibly and have a clear strategy.
If you don't currently have reserves or miss the dip, don't worry about it too much, there will always be more bear markets in the future, and you can implement the mentioned things when that happens.