Cryptocurrency Trading in Different Market Conditions



Contemporary retail traders often have to work under unique market conditions if they are interested in cryptocurrencies. There are many reasons why this particular asset class is so challenging for many investors to tackle. With so many novel trends and concepts to learn, the crypto industry presents a variety of hard-to-overcome difficulties to newcomers.

The diversity of the market is also an interesting challenge. You may choose using crypto trading bots or focus on staking your crypto, or start amassing a large portfolio of appreciating assets. There are endless options which can be overwhelming.

Understanding Cryptocurrency Trading and its Volatility

Cryptocurrencies are novel assets that have been around for less than two decades. While many retail traders have been successful at familiarizing themselves with various tokens, the vast majority of current investors are still novices. Cryptocurrency trading is not harder than working with any other liquid assets such as stocks and bonds. However, there are noticeable differences.

Here are some reasons why digital currency trading is different than anything else:

  •  Novel technology. The concept of blockchain did not become common knowledge despite being relatively easy to understand. The idea of decentralization sounds great to some laymen, but the penetration of the technology is barely deeper than surface-level. It means that many retail traders act chaotically and panic more often than in other financial markets.
  • No fundamentals. Every single coin in the crypto market is a highly speculative asset that does not have any fundamental qualities. Real investments, equity, brand value, human capital, and other factors often used to analyze stocks and bonds are rarely something relevant for a crypto token. Technical analysis is the only reasonable approach to evaluating crypto.
  • Cryptocurrency volatility. Due to factors outlined above and some other unique features of the crypto industry, volatility is something that traders have to be aware of all the time. Scalpers and riskier investors may luck out and thrive in such environment, but many people lose money. You need a reliable technical analysis strategy and good risk management methods to deal with volatility risks.
  • The accessibility is still low. Token owners cannot use or liquidate them as quickly and conveniently as some other assets. It means that you are exposed to unique risks such as unforeseen absence of liquidity, inability to trade, or closure of centralized trading platforms. It is not a big issue for retail traders working with mainstream tokens like Bitcoin, Ethereum, Ripple, etc.
  • Difficult crypto market conditions. The crypto industry is hard to navigate successfully since completely unpredictable events occur quite frequently throwing seemingly consistent strategies sideways. Circumstances change all the time making it impossible to make failproof decisions regardless of the quality of your technical analysis.

If there are so many challenges, why do millions jump headfirst into the world of crypto? Putting aside the huge potential of decentralized finance, the crypto market has a big promise of huge gains available to investors who are brave enough to trade tokens capable of “going to the moon”. At the same time, Bitcoin, Ethereum, and many other coins look like a strong alternative to innately inflationary fiat currencies like the US dollar or euro.

Strategies for Bull Markets: How to Capitalize on Rising Prices

Many experts, who try to downplay the potential of crypto, overlook the long-term trajectory of Bitcoin, Ethereum, and some other coins. Since their creation, these tokens have been steadily going up in prices despite having some notable setbacks. The “crypto winter” did not send cryptocurrencies into an endless downward spiral despite having a devastating effect on some portfolios.

Crypto enthusiasts are certain that the only way for mainstream tokens is up. While sharing such optimism blindly is not the wisest idea, you can cautiously trust the hype and enter long market positions.

Which bull market strategies are the best?

  • DCA buying. Distributed cost average is one of the oldest methods of acquiring assets at discounted prices. Instead of buying assets in bulk, you can break purchases into multiple trades to reduce the average price. Acquisitions can be done during price retracements within strong bullish trends or on a downtrend. DCA is often recommended to all newcomers as the most reliable way of accumulating assets.
  • Leveraged long positions. While acquiring tokens and moving them to cold storage is a perfectly valid way of investing in the crypto market, you can also take long positions on a margin account. Note that such trades must be accompanied by delayed orders and be calculated to ensure that you can sustain a loss without exposing your whole portfolio to risks associated with using leveraged positions.
  • Investing in obscure tokens. Various coins that do not have the same level of popularity and liquidity as Bitcoin, Ethereum, and other heavy hitters can start following the general trajectory of the bull market. Buying some of them for a low price is a good way of profiting from price increases across the board.

There are many interesting bullish trading techniques like using Fibonacci lines to identify potential new support lines or using MACD or other trend indicators to find the best points to exit the market. Exact technical analysis approaches to handing your portfolio during an overall bullish trend.

Navigating Bear Markets: Tips for Managing Losses and Minimizing Risk

When bears start winning and the prices go down, you should focus on minimizing risks and cutting losses on your long positions. The most important thing is to identify when a real bear trend takes form. Liquidating your market positions because of a price retracement is the fastest way to financial ruin.

Bear market strategies often involve using leveraged positions since you need to short assets that are most likely to suffer from the pressure during a downtrend.

Here are some important approaches to use during a bear market:

  • Use delayed orders. When assets are doing fine, you often can become complacent and forget about using stop loss orders. The bull market is often forgiving. On the other hand, bearish trends can cause significant financial losses if you don’t use SL and TP orders to limit risks. Risk management in bearish conditions should be your top priority.
  • Employ technical indicators to identify strengthening trends. You should not overreact to a sudden price dip as it can be a simple price correction or an unforeseen event that made some retail traders panic. Long-term trends are hard to confirm. MACD, Moving Averages, and Directional Movement are three most commonly used indicators to measure the strength of a current trend.
  • Make your portfolio balanced. Introduce short positions to the portfolio to reduce the exposure of your long positions to risks associated with falling prices. It is a good idea to not liquidate $BTC or $ETH, or other appreciating assets and protect them by shorting correlated tokens or taking opposite short positions for the period of the bearish trend.

These techniques will help you reduce losses and make the portfolio a little bit more resilient to volatility during bear markets. Protecting investments in downward trends is highly important since you will have to deal with portfolio contraction and losses.

Sideways Markets and Range-Bound Trading: Maximizing Profits in Stable Conditions

While it seems that sideways price movement does not present many opportunities to retail traders, the crypto market is slightly different from traditional stock markets. Assts continue moving up and down on shorter timeframes even when the market as a whole appears to be stable. Day traders and scalpers continue making money during such circumstances.

Sideways market strategies are quite efficient in the world of crypto. However, using them requires expertise and patience. Here are some range-bound trading techniques that may bring you money:

  • Swing trading. Day traders often employ this method. It can be used on all types of timeframes, but it is a particularly good approach during periods of relative stability. The common strategy involves the use of Relative Strength Index (RSI). The indicator shows when the market is overbought or oversold allowing traders to make quick trades and benefit from short-term price retracements. When the indicator moves close to 70 — 80, you should sell. When it hits 20 — 30, you should buy.
  • Statistical arbitrage adjustments. Sideways movements in the market are good for people running complex strategies such as Statistical Arbitrage. Use periods of relative stability to make adjustments and rearrange your portfolio before the next bull run or a bearish trend.
  • Double down on DCA. Low volatility periods are great for buying assets with the distributed cost average approach. You will find a plenty of opportunities to make small acquisitions without fearing of missing out on profits or overpaying for tokens. Use automation to make DCA even more efficient and allow bots to take bigger positions.

On the other hand, using approaches like arbitrage and triangular arbitrage can be dangerous. Profiting from price ranges and consolidations during periods of stability is not impossible but becomes more difficult as prices tend to converge during such periods. Cryptocurrency trading in stable conditions can be challenging for newcomers. However, with enough experience, you will be able to achieve consistent profitability using various methods of trading during low volatility periods.

Various Technical Analysis Strategies to Use in All Situations

It is possible to use a wide range of market correction strategies and benefit from price movements during all types of conditions. Opportune moments occur all the time in volatile markets such as the cryptocurrency one. While some conditions create more entry points for certain strategies, some techniques appear to be unaffected  by them.

Here are some interesting technical analysis methods that help retail traders identify good selling and buying opportunities during corrections:

  • Using RSI and Volumes. These two indicators are great when used in tandem. RSI shows whether assets are overbought or oversold while Volumes confirm RSI forecasts by providing context (how many trades occur in any given moment). Use these two instruments to capitalize on price pullbacks and sudden spikes.
  • Employing Bollinger Bands. The BB indicator is great at finding statistical outliers. The formula involves Standard Deviation metric to identify price changes that are very uncommon and require further inspections. BB alone is not enough to make a strong forecast, but it provides crucially important context to all other indicators by offering a way of noticing a weird deviation that should be corrected by the market.

Diversification and Portfolio Management: Balancing Risk and Reward across Different Market Conditions

It is hugely important to remain focused and follow your initial strategy to ensure the long-term success of your trading endeavors. Protecting your assets from unnecessary risks is also imperative. Here are some cryptocurrency portfolio management tips to use if you want to reduce risks:

  • Diversifying investments for risk mitigation. Typically, investors try to put their money into different asset classes. However, people who “all-in” on crypto should consider diversifying within the industry. It is possible by purchasing different types of coins and using various types of investments in staking, automation, and trust management.
  • Always protect your market positions with delayed orders. Every single trade should be accompanied by a stop-loss order to reduce potential losses. Do not forget about placing appropriate take-profit orders to lock the profits when necessary.
  • Use advanced automation products like AI bots. The crypto trading platform WunderTrading offers you an opportunity to run a complex statistical arbitrage system and make money consistently while enjoying unique risk mitigation features of an AI-driven automated trading system.

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