A bear market is when a stock market or primary market index drops 20% or more for at least two months, according to the definition of the Securities and Exchange Commission (SEC) in the United States.
All assets tend to decline with rare recovery periods during a bear market. At some point, the price of an investment will fall low enough to become attractive to investors again. At that point, an accumulation phase usually follows, followed by a trend reversal. Therefore, people buy crypto futures during this time. Many investors are waiting for such a moment to invest as much money as possible and win on its increase.
How to make money in a bear market – main points
The question, can you make money in a bear market? arises very often as investors try to find several ways to make money in the cryptocurrency market. A bear market is one of the possible ways to make a quick profit. Bear market strategies can help you trade when negative results and high investor uncertainty are typical. Here are some popular techniques to keep in mind:
- Take a short position. You would open a sell (short) position and speculate on falling market prices. If the market moves the way you expect it to, you make a profit. But even in a bear market, prices can move in either direction. Thus, you incur a loss if the price moves against your position.
- Find a good entry position. When the price decline reaches the 20% mark, it’s official: we are in a bear market. For example, if you want to take a short position, this might be a good point to open that position. Although the price will probably continue to fall, it is impossible to know how long it will continue to fall or if it will fall at all. If it continues to fall, it is also impossible to know how long the price decline will last (the next strategy deals with this).
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- Take profits at regular intervals. The likely direction of price movement in a bear market is down. This could provide an opportunity to lock in profits regularly, but they should be aware that prices can move up from time to time, even in a bear market.
- Trading indices and ETFs. While indices such as the DAX track a range of stocks, each weighted by market capitalization, ETFs track the performance of a market, such as the stocks of a country, index, or sector. Since bear markets are often triggered by supply and demand factors and, in turn, affect economic conditions, such broad exposure to related assets provides an opportunity to profit from expected similarities in price movements. If actual price movements contradict expectations, this will result in a loss.
- Place a stop-loss order. A stop-loss order is an instruction that allows you to automatically close a position once a certain, less advantageous price is reached. If you take a short role, your stop loss order will be higher than the price at which you opened your position. For a long part, the reverse is true. This risk management strategy helps reduce losses when the market turns against you.
How to invest in a bear market
Presenting the best investment strategies in a bear market may seem ironic and counterintuitive, but trading opportunities can exist. For example:
Long-term focus: Despite significant price declines during a bear market, some investors have a favorable long-term market outlook and therefore hold on to their investments.
Selling your investments: Although some investors may choose to ride out the price declines and wait for a strong recovery, selling at the beginning of the bear market is seen by many investors as the obvious choice to reduce potential losses.
Buy cheap, sell dear: Buying during a bear market could prove lucrative in the long run. Although a recovery to previous highs is not guaranteed, the returns could prove worthwhile. But remember that the bear market could continue over the long term, meaning that losses on your investments are likely.
Thanks to the above strategies, you can understand how to make money in a bear market. This is one of the options you can apply to increase your profits. Just remember the risks. Unfortunately, the cryptocurrency market has a lot of ups and downs. Therefore, you should remember possible losses and consider this risk when forming a strategy.
What are other ways to make money: crypto futures
What are futures, and how can I make money on them? In a broad sense, futures are trading contracts between two parties in which currency can be bought or sold at a fixed price and at a specific time. In particular, they are forward transactions in which the seller agrees to deliver a commodity or asset to the buyer on a pre-agreed date and at a pre-agreed price.
Each future includes an underlying asset. For example, stocks or bonds of a particular company, a currency listed on an exchange, and sometimes even the weather or bank interest rates. However, the underlying asset must be traded on an exchange. Otherwise, the contract cannot be concluded.
In return, the buyer agrees to accept the specified goods from the seller. Like options, futures are primarily used to hedge market fluctuations.
Cryptocurrency-based futures appeared only in 2017, they have already gained popularity among investors as an instrument for hedging risks and making speculative profits. And today, lots are used not only to guarantee the price of goods in the future but also to make speculative profits. The central part of the directives market is formed by settlement futures, which do not provide for the direct delivery of goods. Instead of handing over the goods at a specified price on a selected date, the difference is settled. Depending on how the quotations changed, the seller and the buyer fix profits or losses.
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It is virtually impossible to predict in which direction the cryptocurrency markets will go. However, the high volatility has decreased slightly as more and more people hold their bitcoins. Buying futures gives traders several advantages:
- Bitcoin futures trading can reduce overall risk in bitcoins (by hedging).
- Futures can be traded 24 hours a day, seven days a week, and offer high liquidity at a lower cost.
- Lots have no annual management fees.
- Futures trading provides instant access to the market.
- Traders and investors can make higher profits.
- The ability to bet on price increases and price decreases.
Cryptocurrency futures trading differs from spot trading in many ways. First, trading cryptocurrency futures does not involve buying, selling or holding the cryptocurrency assets. Instead, you buy or sell a contract that reflects the value of the cryptocurrency at a specific date in the future.
Therefore, investors may consider earning specifically in the purchase of futures. Consequently, one can not only making money in a bear market, but also make money in the future.
When markets fall, the implied volatility of stocks almost always increases. For option sellers, this is an opportunity to make attractive trades. When implied volatility is high, options are more expensive: your short selling, in such cases, yields higher premiums than during periods of low volatility.
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Not every stock or sector will suffer the same penalty in a stock market crash. It is worth examining each implied volatility and comparing it to past values. How to take advantage of a bear market? For example, the volatility rating and volatility percentile help with this. You can look up the information on the WhiteBit website, for example. Current offers are always published on the crypto exchange. This allows investors to evaluate the market.
Course correction is not just a risk to be mitigated. It is also an opportunity to be taken advantage of. Here, options offer countless opportunities to profit from huge discounts on declining stocks. It’s essential to consider implied volatility in your decision-making process. This will help you find stocks particularly affected by the market correction. If you are confident in the long-term quality of these stocks, it is worth looking at long-term put options to take advantage of their return to normal.