The Secrets to Flourishing in a Bear Market
Historically, on average, every 3 years, there is a crypto bear market that lasts around 12 months. Bear markets are normal, but they are less frequent than bull markets. For example, two of the worst bear markets in Bitcoin's history happened in 2014 and 2017, which lasted 59 weeks respectively 52 weeks.
Crypto bear markets are painful to digest, but if you believe in blockchain technology and its potential to disrupt many industries, there is one simple and effective strategy – aka HODLing. Another more effective strategy is Dollar Cost Averaging, but we will get to this later.
HODLing has proven to be the most profitable strategy, yielding massive long-term gains. In simple terms, HODL is an acronym for "hold on for dear life" and refers to the practice of buying a cryptocurrency and holding it, refusing to sell regardless of the market conditions.
Sometimes, the best investing strategy is to sit on your hands and let the market do its thing because timing the market is almost impossible. Most of the time, investors are either too soon or too late.
As a final thought, make sure you're only HODLing only crypto projects that are sound and have real applicability with the potential to revolutionize the world.
HODLing with Bots (DCA)
An even better alternative is to hold while using trading bots. But is this even possible, you may ask? Yes, it is with DCA!
DCA stands for Dollar Cost Averaging, and it involves entering into a position and then continuing to buy as it heads lower, thus bringing your average purchase price down.
For example, let's say you bought 0.05 BTC at $50,000. The price then falls to $45,000, and then you triple down on your investment, buying 0.1 BTC, thus bringing your average price down to (($50,000*1)+($45,000*2))/3 = $46,666. The price then continues to fall $40,000 where you again tripple down, bringing your average price to (($50,000*1)+($45,000*2)+($40,000*6))/9 = $42,222.
In this case, you could have made a profit when Bitcoin rebounded to almost $45,000. On Cryptohopper, we offer an advanced DCA where you can customize what percentage of your funds you want to use with which DCA and at what levels. You can even manually DCA on a position whenever you want.
DCA Advanced Tips
When using DCA, it is critical to only invest in coins that you are confident will go up again and have proven it in the past, such as Bitcoin and Ethereum. Conversely, you should be very careful not to use DCA on crypto currencies you are not 100% confident with, as you risk losing all of your funds.
What is essential to keep in mind regarding DCA is that you should allocate your funds very well. For example, if you plan on doing DCA four times, you should calculate your initial position size based on this so that you still have funds for the remaining 4 DCAs. If you plan on tripling down and doing 4 DCAs, your initial position can be no more than 1.23% of your account as can be seen below:
Initial position = 1.23%
1, 2*current position = 2.46%
2, 2*current position = 7.38%
3, 2*current position = 22.14%
4, 2*current position = 66.42%
Total = 99.63%
As you can see, if you had entered with more than 1.23% of your total account, you wouldn't have enough money to cover all DCAs. If you use more coins, this value would obviously be even lower.
Other Bear Market Tools
To leverage your trading during a bear market, Cryptohopper also offers many other features, such as Trailing Stop Loss, Trailing Take Profit, and Take Profit at a Profit, that can help you protect your profits.
Trailing Stop Loss works by moving your Stop Loss along with the price. For example, let's say you buy 0.1 BTC at $45,000 with a Stop Loss at $41,000. If the price goes to $49,000, your Stop Loss will automatically move to $45,000. Take Profit at a Profit works similarly but for your Take Profit.
The Trailing Take Profit feature moves your Take Profit along with the price. For example, let's say you buy 0.1 BTC at $45,000 with a Take Profit at $55,000. If the price goes to $49,000, your Take Profit will automatically move to $53,000.
Bottom Line: DCA is a powerful tool that can lead to great results when used correctly. To get the most benefits out of this tool, you should only use it on worthy cryptocurrencies that have proven themselves and calculate the initial position size so that you have enough funds for all DCA entries.