Crypto Trading 101 | How To Trade Crypto in a Bear Market
How to use indicators to predict downtrends in cryptocurrency markets and automate cryptocurrency trading in bearish market conditions.
All financial markets have a ‘bull season’ and a ‘bear season’, which depend upon a variety of factors. Cryptocurrency markets also alternate between markets moving up (uptrends) and markets moving down (downtrends). Traders can secure profits when the prices of cryptocurrency markets are going up. But what about when in a downtrend?
In cryptocurrency markets, it is absolutely possible to profit from a trade when the underlying trend is working in a trader’s favor. In other words, traders can make winning bets when markets go down, if they play their card correctly.
In this article, we look at how to recognize a bearish trend or downtrend in cryptocurrency markets, the strategies for trading in a downtrending market, and how to automate them using Cryptohopper’s tools.
Analyzing Downtrends in Cryptocurrency Markets
Analyzing upcoming trends in cryptocurrency prices is critical for any trader. The analysis assists in making careful trading decisions on whether to buy, sell, or hold crypto assets. Moreover, by analyzing trends, a trader can also identify strategies to trade in bearish markets. The main trends in cryptocurrency markets can be analyzed through fundamental and technical analysis.
Fundamental analysis involves analyzing the price of cryptocurrency tokens through the project’s fundamentals, including its team, roadmap, performance, etc. Technical analysis involves examining the price trends through a set of technical indicators based on charts, patterns, trading volume, etc.
While it is impossible to completely predict the direction of markets in near future, there are technical tools that can help. These indicators act as instruments to gauge bullish or bearish market trends.
Let’s examine some technical indicators that help recognize downtrends in cryptocurrency markets.
Day traders use moving averages as indicators before choosing to enter a trade. This tool involves tracking prices of a cryptocurrency asset over a specific period of time. There are many types of moving averages including Exponential, Simple, Weighted Moving Averages etc. Moving Averages (MA) take into account previous price actions over a time duration that has been specified by the trader. For instance, a 10 period moving average, looks at the closing price of the last 10 candles, if the trader looks at the daily chart, then this is the last 10 days, if he looks at the hourly chart then this is the last 10 hours. Therefore different traders use different moving averages lengths and on different charts.
Moving Average crossovers are one of the popular trading signals that are used by traders. To predict trends, traders use at least two moving averages. The traders will identify a bullish trend when the short term MA crosses over the long term MA, and they will identify a bearish trend when the short term moving average crosses over the long term MA. A set-up that tends to work in the Crypto markets is the crossover of the 10 and 50 EMA.
Parabolic SAR Daily Chart
The Parabolic SAR on a daily chart is another indicator to help recognize market trends. The indicator is represented as a set of dots on a chart. Traders use the Parabolic SAR indicator to predict the entry and exit points of a trade. Some traders, may for example only take long trades, when the Parabolic SAR is bullish on the daily chart. In a downtrend, a trader can set a stop loss using the findings from the indicator.
The dots displayed underneath the price in a chart represents bullish market conditions and the dots displayed over the price in a chart represent bearish markets.
Automating Cryptocurrency Trading in Downtrend Markets
While some traders choose to trade only in bullish market conditions, there are strategies to profit even in bearish or downtrends in cryptocurrency trading. Moreover, you can use Cryptohopper to automate these trading strategies by defining triggers.
Shorting involves selling a cryptocurrency asset before you actually own it, and buying it later on at a lower price (as the market declines). With shorting (short position), you make a profit when the price of an asset is falling down.
With Cryptohopper, you can automate your shorting strategy. However, it works a bit differently than the regular shorting you may be familiar with. For the shorting feature, you are required to own the asset first, sell it at the current price, and buy the asset back when the market drops. Our hopper reserves the quote currency for you which ends up under the tab of ‘Short Positions’. You can set a percentage to buy it back, and the bot automatically buys the asset when the price falls down to your specifications.
Automating with Triggers on Cryptohopper
Triggers in Cryptohopper enable the hopper to act automatically in accordance to market trends. You can set up various triggers on the Cryptohopper trading interface which will automatically be implemented as per market trends. For instance, you can disable your trading in a downtrend or automate your settings in case of bearish markets to profit from falling markets.
A trader can configure triggers in Cryptohopper’s Trigger configuration. These triggers can either be configured for individual cryptocurrencies. For instance, disabling buying BTC when it rises above 10% in 24 hours. Alternatively, triggers in hopper can be configured for a group of coins on different candle sizes. Triggers act as a safety net that defines the boundaries for the hopper to automate actions. Moreover, in Cryptohopper, various technical indicators like RSI, Stochastic, EMA, MACD, and more can be used to create triggers.
In the trigger configuration, a trader needs to define the conditions for the trigger to get activated. Post this, a trader enters the subsequent action for the hopper to perform. These actions can be buy or sell a crypto token, hold the coin, or even change the template if the market looks bearish. With triggers in Cryptohopper, a trader can maximize the potential for profits while also minimizing the risks in cryptocurrency trading.
In Cryptohopper, setting up EMA triggers and Crash Protection triggers facilitate you to maximize your profits and minimize your losses by setting up different parameters. Instead of disabling your trading, you can set up a template for bearish market conditions that will automatically be activated by the hopper. For instance, you can define the long MA and short MA and allow Cryptohopper to automatically activate triggers when they cross to bullish or bearish market trends.
The Bottom Line
While technical analysis and indicators give a fair idea of predicting trading signals in cryptocurrency markets, you should not rely solely on them. For longer-term investments, it is necessary to carry solid fundamental analysis on the cryptocurrency asset. The indicators discussed above act as helpful tools in gauging bull or bear trends. Moreover, with Cryptohopper you can set up different templates based on market trends to trade more strategically.