February 10, 2023

How to trade (successfully) in a bear market

The term “bear market” tends to be a sensitive subject for many, but to others, it just means another day of trading as usual.

And that’s how it should be if you’re looking to become a successful trader. While displaying emotions in any market condition is not ideal, in bear markets, specifically, it can be detrimental to your account.

The truth is that trading in a bear market isn’t as intimidating as the masses make it out to be.

Correcting your thinking

One of the primary reasons there’s so much negativity built around bear markets is that a large majority of those doing the “trading” doesn’t follow simple technical trading basics.

In a raging crypto bull market, those invested can and usually do experience impressive gains over a short period, regardless of what coin they hold.

The key word is hold because although most understand this basic strategy, they don’t understand the second part, which is to take a profit.

During a bear market, instead of long holds and incremental take profits, while the price rises, it’s buying the dips and shorting the rips. 

To be successful, a trader must shift from the bull market cyclical movement ways of thinking to the bear market momentum movements.

Minor tweaks

Albeit not necessary, strategies such as leverage or margin trading become even riskier during bear markets.

Still, confident traders don’t allow this to prevent them from including such advanced tools in their wealth-building strategies; however, they are on alert more than ever. 

There’s no room for slack; a trader must always uphold a high level of discipline, especially in bear markets. 

This includes adhering to the “basics” such as practicing proper capital management, logging your trades, following your plan, and using “smart” tools such as a stop loss and even automated trading bots.

A stop loss is like the driver in the passenger seat who has access to an emergency brake. No one ever thinks they need them there, and if they should ever engage in the emergency brake, it’s always unwarranted to the driver. 

But the reality is that a stop loss is a vital tool that saves traders.

Automated strategy

Automated trading bots have become increasingly popular over recent years due to their user-friendly interfaces and the many benefits they deliver to traders.

During bear markets, automated trading bots have proven effective, particularly with the famous Dollar Cost Average (DCA) trading strategy.

DCA is a perfect method to deploy during a bear market and provides an additional layer of risk mitigation.

Cornix Smart DCA Bot allows users to create their own DCA bot using their strategies or copy public winning DCA trade setups that display their performances and come in various cryptocurrency pairs. Although other traders share these DCA bot strategies, they are anonymized. 

With just a few simple clicks, someone with little to no trade (or tech) experience can now enjoy technology that just a few years ago could only be accessed by certain traders. Cornix has its own Create Bot Wizard that walks the user through a simple 5-step process that also highlights any errors that need to be corrected before the bot can function correctly – no more guessing or need for the process of elimination. 

Other platforms also offer DCA bots; however, it is rare to find one that offers anonymity and historical performance since inception.  

Most platforms do not offer the ability to copy winning DCA strategies from other traders and customize your own DCA bot – this is just one instance where Cornix differs from the rest. 

The DCA strategy is already a time-tested and proven winning strategy, so the ability to take it one step further and have professional traders tune automated bots with their specific DCA trade setups is powerful.

The benefits

Automating your strategy helps take a trader’s biggest downfall out of the equation: emotions.

However, like stop loss, automated trading bots are also tools. A trader can have all the tools in the world, but they must be used correctly to be effective.

This is usually when the use of technical indicators, such as RSI, EMA, Bollinger Bands and Fibonacci, are integrated into one’s strategy. However, other indicators, such as the “Crypto Fear and Greed Indicator” and the “Bitcoin Google Search” traffic, are not as technical.

These indicators track a single metric, either the fear or greed levels in the market or how many people globally are searching Google for the word “bitcoin.”

Moving Average Convergence Divergence (MACD) and Average Directional Index (ADX) are common indicators traders use. Indicators are usually broken down into two categories: “leading” and “lagging”.

They both give a great insight into the current psychological state of the markets, which is said to be the main factor of investing.

It’s common to hear successful traders advise about going against what the market is doing, so if the crypto fear and greed index showed the market is experiencing extreme greed, meaning overbought, or if the market is fearful, meaning oversold, you would essentially take the opposite stance.

Just as the famous quote by Warren Buffet states –  “ Be fearful when others are greedy, and greedy when others are fearful.” 

In a similar fashion, when the Bitcoin Google search traffic is high, that usually means there’s a lot of hype in the market, possibly even over-bought. In contrast, low traffic usually represents a lack of interest or oversold conditions. 

Bear markets also bring about a new topic of “catching the bottom.” Whether a trader is long-term bullish or bearish is irrelevant, every trader would love to be able to say that they perfectly time the bottom, but it rarely happens.

Combining the above information, tools, and tips will help prepare you to trade effectively in a bear market. 

Sure, you still probably won’t be able to catch the absolute bottom, but it beat’s getting stuck in a position mid-bear market with no more cash reserves left to buy more at a better price “if” that opportunity should come.

A famous quote around this scenario: “A market can remain irrational for longer than you can stay solvent.”

You’ll be fine as long as…

You have a plan. Now, couple those plans with a robust tool like the Cornix DCA bot, and you can confidently approach even the worse of bear markets. 

Look for previous support levels to act as resistance if trading below it, and wait for confirmation to ensure the previous support hold’s before entering a long.

While crypto is no stranger to volatility, the price momentum shifts during bear markets can be extreme.

Emotions are a trader’s worse enemy, so eliminate that hurdle by automating your trading.