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In both bearish and bullish market conditions, assets of all kinds will experience both price increases and price decreases over time. In many cases, increases and decreases can both be expected to occur within a single hour. Even if these changes are relatively small, they still indicate that someone is either increasing or decreasing their marginal wealth.
While the onset of COVID-19 caused the stock market, along with many other markets, to lose a considerable amount of capital, it has also created many opportunities for risk-tolerant traders to increase their wealth. While you will want to be sure to take plenty of active measures to increase your wealth, bear market trading strategies are often very effective.
Whether the economic fallout from COVID-19 persists or subsides, it will be important to learn how to trade under every possible market condition. After all, the markets in 2020 have been measurably more volatile than ever before. While volatility indicates a risk to some traders, for others, volatility is really just a code word for opportunity.
In this article, we will discuss eight ways to improve your trading strategy during bearish conditions. By taking the time to understand these methods—and implement them into a broader trading strategy—you can successfully exploit natural market changes, no matter what the future has in store.
Here are the 8 ways to improve your trading strategy during a bear market
1. Buy Puts
Puts options, which are a type of options contract, are ideal for bearish markets because they offer a limited downside (the most you can lose is the price of the contract) and put options increase in value as the price of the underlying asset is falling.
Put options give traders the option to sell an asset at a specific price in the future. Purchasing these options can be extremely effective for traders who believe prices are about to fall.
They can also be used to help control the risk that comes with holding longer positions. Put options can be purchased for individual companies, but they can also be purchased for index funds that are expected to decrease in value.
2. Adjust Your Stop Order Ratios
Stop orders are used by traders to exit a position when an asset’s price either drops below or moves above a predetermined value.
In essence, these orders make it possible for traders to automatically “lock-in” their earnings at an acceptable level or cut their losses once a price has dropped too far.
If you normally use a 1:1 stop order ratio, consider increasing the ratio to 2:1. You may also want to consider broadening your acceptable range (5 percent swings to 10 percent swings) in order to allow for the market’s increasingly volatile movements.
3. Shorten Positions
When markets are bullish, it is easy to just put as much capital as you can into an index fund and ride the market’s broader growth.
Countless people did these between 2010 and 2020 when the markets experienced a very long period of growth. When markets are bearish, on the other hand, you may want to shorten how long you hold a given position.
Things are generally trending downward, meaning you are working against the market average.
To maximize your profit potential—while also minimizing exposure to risk—you will likely need to enter into and exit out of the market more frequently. Switching from swing trading to day trading may be in your best interest.
4. Diversify Assets
Diversification is the most reliable method for reducing the asset-specific risk found in a given portfolio.
Even when the stock market, as measured by major indexes, goes down, there are often many “contra” assets that will increase in response. Gold, for example, has enjoyed quite a rise over the past few weeks, as have other commodities.
You may also want to consider investing in various ETFs that have typically increased during bullish conditions. The more diversified your portfolio can become, the less likely a single asset will cause it to collapse.
5. Fundamental Analysis
During times of tremendous economic uncertainty, the government—along with various other institutions and entities—is much more likely to take dramatic actions that can potentially influence the market.
Even just looking at the news cycle surrounding COVID-19, it becomes clear that every time Congress has even hinted at possible stimulus packages (both for corporations and for individuals), markets have experienced dramatic short-term upswings.
The same can also be said about the Federal Reserve, whose monetary policy decisions are almost immediately reflected. Rather than just relying on hard data, paying close attention to the news can make it easier to find new opportunities.
6. Sell Naked Calls
Naked call options are profitable when the market price of the underlying asset remains below the strike price of the asset on the expiration date.
If a stock is trading for $90 during bearish conditions, $100 near-term call options will likely be pretty affordable and will have relatively little risk.
Additionally, as we have seen with other bearish options trading strategies, naked calls are an excellent tool for controlling the exposure to risk that comes with other positions.
7. Use Offsetting Options
As suggested, options contracts will be one of your most useful assets during a bearish market.
These contracts can be used to create situations where you can either profit from the market experiencing a general state of decline—which is exactly what a bearish market is—or you can mitigate the amount of risk that comes other, specific conditions.
Purchasing calls and puts together, for example, can help you gain significantly more control over how your portfolio is influenced by sudden market changes.
8. Trust Long-Term Decisions
Bearish market conditions have actually been proven to skew people’s decision-making processes and cause them to make irrational decisions.
The “scarcity mindset” causes people to sell when their assets are underpriced and buy when assets are overpriced—the exact opposite of what a profitable trader should do.
When you see your portfolio losing value, don’t panic and sell everything, otherwise, you will “lock-in” your losses. Even when the stock market experienced its worst year in 1931, its best year occurred in 1933. Being willing to trust your long-term decisions can go a long way.
Conclusion – 8 Ways to Improve your Trading Strategy During a Bear Market
Bearish markets can be extremely profitable, but they can also be rather difficult to navigate. By keeping these essential tips in mind, you can continue pursuing your trading goals, even as the market experiences a general state of decline.
Learn more about starting out in the crypto space by reading this helpful crypto guide.
And if you want to find out where are the best cryptocurrency exchanges to implement your new trading strategies read our popular guide on the best crypto exchanges of 2020.
Other popular guides:
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Per Englund – Founder of Go CryptoWise a cryptocurrency and tech fan that want to see better and smarter products and services that make our lives better and easier
Which crypto exchange platform is faster, coin transfer or Godex?
The coin transfer exchange works in a semi-automatic mode. The exchange takes place from morning to evening with the participation of the operator. All switching processes are carried out with the help of a support person. This way of working has its advantages.
A lot of people these days use automatic exchanges because it’s quick and easy. However, a semi-automatic service offers the possibility of a safe change.
This option is particularly recommended for beginners who do not yet know how to correctly fill in the fields in trades, how to find out the amount of the commission and when to complete the operation.
Most important steps in currency exchange
The change works in 3 steps:
Step 1: Select a currency pair to swap in the cryptocurrency converter. Check the box that you agree to the tariff, service fees, and fees for the cryptocurrency network.
• Step 2: Fill out the exchange form and check the entered data, as in most cases cryptocurrency transactions cannot be canceled.
• Step 3: Send the amount specified in the application to the address provided by the exchange operator and receive the cryptocurrency on your wallet within 5-30 minutes.
Cointransfer has been active since 2016 and offers 219 currency pairs.
The swap board has over 1,760 reviews, most of which are positive. If you have already changed the currency on this service, you can leave your feedback and add to the collection of comments on this exchange service.
The Godex crypto exchange is an excellent example of a website that allows you to exchange one type of cryptocurrency for another online. Dynamic price changes, complete absence of transaction limits (the transaction time can increase with large amounts), a clear user interface – everything is done here to ensure that investors feel comfortable. There is also a dedicated affiliate loyalty program so you can get a quick entry into the cryptocurrency market. It is time to look into the subject of such an investment.
You should understand right away that it is impossible to completely eliminate the risks involved in buying a cryptocurrency. Even most stable coins can lead to a complete loss of the money invested; even if the likelihood of such a course of events is extremely low. Only after you have considered all the advantages and disadvantages of each model, familiarized yourself with the market indicators over a period of time and analyzed the opinions of experts, should you make an informed decision.
When you are ready to buy cryptocurrency, you should do so strictly in accordance with certain rules. Investments need to be planned and made wisely. Creating a wallet with an address is necessary and does not take much time. You can buy the cryptocurrency you are interested in after registering with a specialized exchange – just select a popular currency to buy. After buying, many advise transferring the coins to offline storage to eliminate the possibility of hacking and theft of investments. By investing in one with a view to market capitalization, the risks of a currency can be significantly reduced. The three cryptocurrencies that currently meet these requirements are:
Godex.io currently serves thousands of customers with over 10,000 transactions daily. So if you are looking to swap one coin for another, you should try Godex.io and enjoy fast transactions at good exchange rates.
Maker Hits a New All-Time High Close to the $5,000 Mark
Maker is the first Ethereum-based smart contract system to launch an automated cryptocurrency lending platform.
Maker provides the first decentralized basic stable currency Dai (which can be compared and analyzed as the U.S. dollar on Ethereum) and a derivative financial system, promoting the prosperity of decentralized finance (DeFi).
Dai is issued through a full mortgage guarantee of digital assets. Since its launch in 2017, Dai has always remained anchored to the U.S. dollar with a 1:1 ratio.
On April 19, members of the MakerDAO community began to vote on MIP45, a proposal aimed at upgrading the liquidation system of the Maker protocol and maintaining the stability of Dai pegged to the U.S. dollar.
If approved, the liquidation 2.0 system will provide higher security, predictability, and decentralization, and provide community members with more opportunities to participate in collateral auctions through Auction Keeper software and a more conventional interface. This will promote the participation of the Maker community and the entire DeFi department.
According to data from DeFi Pulse, Maker, the largest DeFi agreement with system collateral of $965 million, dominates 16.44% of the entire DeFi market.
The holders of the Maker (MKR) tokens of the project have received a 64.23% price increase reward in the past week. According to CoinMarketCap, Maker with a market cap of $4,817,105,553, ranks as the 30th largest cryptocurrency.
The token has grown nearly eight-fold since the beginning of this year, rising from $587 to $4,652, It hit a record high of $4,995 today, breaking the $4,500 marks in one clean swoop.
Maker (MKR) Price Analysis
Source: MKR/USD 4-hour via TradingView
Judging from the 4-hour candlestick chart, MKR has successfully broken through its previous high of $4,118, and the rapidly expanding trading volume has resulted in $4,118 being flipped from a resistance to a support level.
The transaction price of MKR/USD is higher than the Exponential Moving Average (EMA) ribbon. Both the upward moving average and the bullish MACD index indicate that the bulls are currently dominating the market.
However, the Relative Strength Index stepping into the overbought zone is gradually levelling off, which suggests that MKR is encountering relatively strong selling pressure after touching its all-time high of $4,995 today. The MKR’s price will therefore experience a slight retracement, and it is likely to trade sideways for a period of time around $4,400-$4,600 before resuming its upward momentum.
If MKR’s price can stabilize above $4,200, then the upward trend of Maker may open a faster upward channel. As Maker hit a new high, this will mean that the altcoin will not encounter strong selling pressure on its way up. If the entire crypto market emerges from its current slump, it is highly likely that Maker breaks through $5,500 in the short term.
Conversely, a surge in the number of sell orders will push MKR below the $4118 support level and may trigger a more severe correction to the 20-day Exponential Moving Average of $3,795.
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RIT Capital Partners acquires a stake in crypto exchange Kraken.
According to the official announcement, RIT Capital Partners invested in the crypto exchange Kraken last month. The British investment firm described Kraken as one of the largest cryptocurrency exchanges worldwide, with more than 6 million clients. Kraken has seen a surge in cryptocurrency trading volumes during the last few months. The crypto exchange is also reportedly […]
According to the official announcement, RIT Capital Partners invested in the crypto exchange Kraken last month. The British investment firm described Kraken as one of the largest cryptocurrency exchanges worldwide, with more than 6 million clients. Kraken has seen a surge in cryptocurrency trading volumes during the last few months. The crypto exchange is also reportedly planning to go public in 2022 through a direct listing.
“Kraken is currently in talks with investors about another round of fundraising.”
“Kraken is currently in talks with investors about another round of fundraising that could give it a valuation of $20bn. Talks have been held in discussions with Fidelity, Tribe Capital, and General Atlantic. Kraken CEO Jesse Powell said this is being delayed in order to evaluate how Coinbase’s IPO performs. Kraken has a strong balance sheet, and the company is not in a rush to raise capital,” the official announcement states. Kraken is not the only cryptocurrency exchange that is planning to go public for global expansion; several other crypto exchanges are eying IPO in the coming time.
Coinbase went public via a direct listing on Nasdaq last week.
The US-based crypto exchange went public last week and received a reference price of $250 for COIN shares. The shares of the crypto exchange touched an all-time high of approximately $420 on its debut but saw a correction later. COIN stock closed at $311 yesterday. As reported earlier, Coinbase CEO Brian Armstrong sold 749,999 COIN shares worth nearly $292 million last week. The US-based crypto exchange saw nearly $335 billion in trading volumes during the first three months of 2021. The crypto industry has garnered a lot of mainstream attraction in the last year or so. Coinbase getting listed on Nasdaq is being hailed as a major milestone for the crypto industry.
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