Can Day Traders Make Profit During Crypto Bear Markets?

In the past, many crypto traders capitalized on bull runs like the 2017 Bull Run, where Bitcoin broke a record and reached $17,000 in December. Many investors hopped on the frenzy due to fear of missing out (FOMO), although what transpired in 2018 caused some unease for Bitcoin as it experienced a huge bear market.

BTC dropped more than 70% in value the following year, plummeting as low as $3,400 in December. It shows how investors can utilize a bull run to make profits. In this case, we will consider bear markets and how day traders can capitalize on making profits.

What Are Crypto Bear Markets?

The cryptocurrency market often experiences day-to-day or even moment-to-moment volatility, which describes the bull market and the bear market. While a bull market describes a rising market, a bear market describes a declining one. In this case, a bear market often refers to either a longer period of downward movement or a substantial 20% downward swing of prices in the cryptocurrency market.

In layman’s terms, a bear market is when the supply of a cryptocurrency outweighs its demand – prices are declining. It occurs when investors are often pessimistic about the price of a cryptocurrency, and they believe the prices will continue to plummet. As investors’ confidence declines, a negative feedback loop emerges, which tends to pull back investors, and causes prices to continue deteriorating.

How to Determine the End of a Bear Market

A bear market will often experience fluctuations, dips, and corrections as prices continue to move. For that reason, you could easily misinterpret a short-term upward movement as the end of a bear market, which is sometimes not the case. To be on the safe side, you should consider potential signs for a trend reversal from a broader perspective – capitalizing on price action over longer time frames.

Bear markets don’t last forever since the history of cryptocurrencies depicts that investors will regain their confidence and raise the prices of cryptos at some point. Anything could trigger a bear market like bad news from unfavorable legislation and unforeseen circumstances like the COVID-19 pandemic. In such scenarios, investors believe that prices will continue spiraling where they will often sell their assets to avoid further losses.

Bear markets are hard to predict the bottom price reached or when the trend will end because the process of rebounding is usually slow and unpredictable. It’s also significantly influenced by many external factors like investor psychology, economic growth, and world news.

Nevertheless, bear markets present outstanding opportunities where investors can bag big. In particular, investors can utilize a long-term investment strategy and purchase during a bear market and profit when the market reverses itself. On the other hand, an investor utilizing a short-term strategy can make profits from temporary price spikes or corrections. More advanced investors tend to short sell their assets by betting that an asset will rise in price after a bear market event.

Day Trading for Crypto Bear Markets

Day trading in cryptocurrency refers to investors entering and exiting a market within 24 hours to make profits. When it comes to bear markets in cryptocurrencies, day traders can capitalize and make a significant profit if they use a potential strategy with minimal risks. For this reason, traders have managed to implement some strategies like using stop losses, buying the dip, diversifying their portfolio, etc.

First, one way to bag profits while trading bear markets is by setting up buy-the-dip entries. A trader has several opportunities to buy the dip during bear markets. Once you read the chart, you can buy the dip when the market seems to be rebounding and make profits. However, it would be best if you were fearful of buying the dip in a bear market, especially when almost every asset is trading in a sea of red. That’s because your entry market can plummet as soon as it bounced back up.

To avoid this, you can set up your buy-the-dip positions early enough after conducting research and analysis of your preferred trade. Moreover, this will set your entry ahead of time to ensure that they get locked in when the dip comes. Once you buy the dip, you can sell your assets immediately when the cryptocurrency gains traction and make a profit.

Secondly, even though buying the dip might make you some profits during a bear market, it’s equally necessary to set stop-losses. A stop loss is crucial to ensure that you manage your risks appropriately.

Bear Markets and Crypto Volatility

The volatility of cryptocurrencies depicts that bear markets are not stagnant and tend to move swiftly. In short, volatility is never a friend when trading cryptocurrencies. So, when you are day trading, you have to set up stop-losses in your trades to get you out of a losing trade. A stop-loss might mitigate your losses as well as make your potential profits.

Lastly, you can take advantage of a bear market to diversify your portfolio. You can also research the past bear market for cryptocurrencies to see which crypto went up or at least held their positions when the rest in the market were plummeting. It gives a clear picture of which asset is best to trade within the day during a bear market and which ones to avoid.

On the other hand, you can choose several assets that show the potential of making profits to limit losses you would endure if you traded on one asset. Diversifying your portfolio does not eliminate the risks, but it distributes them not to lose all your assets. Still, you can make profits in a few.

Conclusion

The high volatility that backs cryptocurrencies is often a potential hazard for investors wishing to utilize day trading on a bear market. For veteran investors, they might have a few strategies to tweak and make profits, but it’s advisable to do more research before making any trade for newbies.

Nonetheless, the aforementioned strategies shed some light on investors who wish to “take the bear by its paws”, invest in the bear market, and make significant profits. What’s more, investors can choose not to succumb to the fear of bear markets and ‘HODL’ their assets till the end of the day for potential profits. Again, in any strategy you intend to participate in, there is a call for intensive research to limit losses you might endure.

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