Everyone is brilliant in a bull market, but how do you trade in a bear market?
Markets are scary right now, and while things are likely to get worse, that doesn’t mean investors should sit back and watch. In fact, history has proven that one of the best times to buy Bitcoin (BTC) is when nobody is talking about Bitcoin.
Do you remember the 2018-2020 crypto winter? I do. It is unlikely that anyone, including the mainstream media, has spoken positively or negatively about crypto. During this period of a long downtrend and extended sideways movement, savvy investors hoarded funds to prepare for the next uptrend.
Of course, no one knew “when” this parabolic surge would happen, but this example is just to illustrate that crypto can be in a crab market, but there are still great strategies for investing in Bitcoin.
Let’s look at three.
Accumulation by averaging the dollar value
It makes sense to be price agnostic when it comes to investing in assets for the long term. A price agnostic investor is immune to price swings and will identify some assets they believe in and continue to add to their positions. If the project has good fundamentals, a strong, active use case, and a healthy network, it makes more sense to just use the Dollar Cost Average (DCA) in a position.
Take this chart of DCA.BTC for example.
The results of the weekly averaging of the dollar value in bitcoins. Source: DCA.BTC
Investors who have been auto-buying $50 worth of BTC a week for two years are still making profits today, and thanks to DCA, you don’t need to make trades, watch charts, or experience the emotional stress of trading.
Trade with the trend and go long from extreme lows
Barring a stable, reasonable dollar average, investors should hoard a war chest of dry powder and just sit back and wait for generational buying opportunities. Entering a market when it is severely oversold and all indicators are in extreme positions is usually a good place to go spot long but with less than 20% dry powder.
When assets and price indicators deviate from the norm by two or more standard deviations, it’s time to look around. Some traders zoom out on the three-day or weekly timeframe to see when assets correct to higher timeframe support levels or previous all-time highs, which is a sign of investing.
200 week moving average heatmap for bitcoin. Source: LookIntoBitcoin
Others are looking for rates to turn moving averages like 118 DMA, 200 WMA, and 200 DMA back to support. Network fanatics usually watch the Puell Multiple Indicator, MVRV Score, Bitcoin Pi Indicator, or Realized Price Indicator to see when extreme multi-year lows are being hit, which is a sign of when to buy.
In any case, during extreme sell-offs, spot longs usually prove to be a good swing trade or even a multi-year entry point.
See also: Who Mun? Probably Not Soon: Why Bitcoin Traders Should Embrace the Trend
Don’t do anything until the trend changes
Trading during a bear market is difficult and capital and portfolio preservation is a top priority. For this reason, some investors are better off just waiting for confirmation of a trend reversal. As they say, “the trend is your friend.” Everyone is a genius and an excellent trader during a bull market. So if it was you, wait for the next bull trend to reverse and then be a carefree genius.
Downtrends, consolidation and bear markets are notorious for undermining traders and reducing portfolio size, so trading against the trend is unwise unless you have a positive PNL method of trading during a bearish trend and some short selling skills .
It is important for crypto investors not to live in a vacuum and keep an eye on the stock markets. Crypto traders tend to only focus on cryptocurrency markets, and that is a mistake as stock markets and BTC and Ether (ETH) prices have shown a strong correlation over the past two years. In the chosen chart set, it would be wise to keep the S&P 500, Dow Jones or Nasdaq charts alongside the daily BTC or ETH chart.
Bitcoin correlation with stock markets. Source: blocks
During the recent trend reversal, BTC price action has been like a canary in a coal mine, lukewarm