The post 8 Ways to Improve your Trading Strategy During a Bear Market appeared first on Go Cryptowise.
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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NFT Sales Heat Up as Rarible Marketplace Passes $5M in Volume
While decentralized finance (DeFi) has grabbed most of the recent headlines, the non-fungible token (NFT) market has quietly picked up steam over the summer. According to a Sept. 16 report from crypto asset data website Messari, Rarible, an NFT marketplace, has passed $5 million in sales so far this month—more than quadrupling sales numbers from August. […]
The post NFT Sales Heat Up as Rarible Marketplace Passes $5M in Volume appeared first on BeInCrypto.
According to a Sept. 16 report from crypto asset data website Messari, Rarible, an NFT marketplace, has passed $5 million in sales so far this month—more than quadrupling sales numbers from August. The report also noted that $1.5 million of this new volume came on a single day, on Sept. 14.
Rarible is a place where you can create, buy, and sell digital collectibles and, as such, is the beneficiary of surging NFT popularity, driven mostly by digital art. On Sept. 21, the news of a record-breaking digital art NFT sale was announced, with a piece called “Right Place & Right Time” selling for more than $100,000.
Rarible’s numbers, and the general buzz surrounding digital art, have caught the attention of a few big names in crypto. Morgan Creek Digital co-founders Anthony Pompliano and Jason Williams have reportedly made a “big bet” on digital art.
As outlined in Pompliano’s daily newsletter, the bet is based on the idea that digital art will become bigger than traditional art, a market that has had a cap of “$65 billion for the last few years.” By comparison, digital art’s current market cap is around $10 million.
Never one to shy away from a controversial stance, Pompliano went on to state, “my confidence level that we see a future 6,000x increase in the digital art market cap is fairly high.” Because of this, “we [Pompliano and Williams] plan to invest heavily in the space over the coming months and years” he said.
Others, however, were slightly less bullish. The CEO of crypto derivatives exchange FTX and Alameda Research, Sam Bankman-Fried, tweeted a more skeptical take.
The tweet prompted a debate over the value of art, the ease with which “unique” digital art can be copied, and the future NFTs may or may not have.
Adam Back, the well-known cryptographer and founder of Hashcash, chimed in, encouraging Bankman-Fried to consider buying digital art NFTs as art patronage, “you could photocopy it, but then you’re not a patron.”
Digital art is, of course, just one piece of the NFT pie. The fantasy soccer game Sorare, which allows players to collect “limited edition digital collectibles” while also managing a team, has also seen an increase—recording sales of around $750,000 this month, almost half its all-time total.
Iran to Provide Crypto Miners With More Electricity Subsidies
The Iranian government has continued its crusade to support the country’s fledging crypto mining space. In its latest show of help, Tehran has announced a program that will allow miners to access a significant surplus of energy.
A Great Time to be an Iranian Crypto Miner
According to reports from local news media, the Iranian Thermal Power Plant Holding Company (TPPH) has announced a plan to provide three power plants’ electricity output to miners in the country. The program, which will be conducted after a tender, improves miners’ access to one of their most fundamental resources, thus improving their overhead efficiency.
Mohsen Tarztalab, the agency’s head noted that the country’s struggling economy had been a concern for the government. It now seeks to create an enabling work environment that will benefit companies and provide employment opportunities. The country’s electricity has also seen a significant gap between revenues and expenses, and the government sees crypto mining as a means to improve revenues and provide income for the state.
However, the initiative comes with a condition, as miners will only be able to get the output from expansion turbines in plants. According to Tarztalab, this process won’t include any consumption of liquid fuels. By using just natural gas, the government is hoping to make the process as green as possible.
Tarztalab noted that the expansion turbines are independent and don’t participate in the national grid’s electricity production process. So, the government will be able to conduct this electricity transfer without necessarily affecting the country’s electricity production capacity.
A Structured Mining Industry Yields Results
So far, Iran has done a laudable job of legitimizing the crypto mining industry and providing an enabling environment for players. So far, the process has yielded some positive results. In July, local media house Mehr News Agency reported that the Ministry of Industry, Mine, and Trade had issued 14 mining licenses to foreign companies, as investments in the country continued to surge.
Iran’s mining license requirement began earlier this year, as Vice President Es’haq Jahangiri issued a directive to that effect. To get a license, miners would need to disclose information on their officials, the mining equipment they use, and the size of their operations. A report from the country’s Banking and Economic System Reference Media (IBENA) back in January confirmed that over a thousand companies already got their licenses.
Another incentive for registered miners is a reduced power rate, with Mehr News Agency reporting that miners are now getting charged as low as $0.11per kilowatt-hour (kWh). For peak summer season (June to September), however, they will have to pay $0.46 per kWh.
The government has also set up a process that rewards citizens for blowing the lid on illegal mining facilities. Last month, Tavanir, the state power company, announced that it had shut down 1,100 of such criminal outfits already. Per reports, every whistleblower gets a 100 million rial ($480) reward for their help.
Litecoin Transactions Skyrocket as LiteBringer Game Takes Off
In idle fantasy role-playing game LiteBringer, every players’ move is a transaction—and that benefits the whole blockchain.
- The number of daily Litecoin transactions has exceeded 130,000 following the launch of LiteBringer.
- The blockchain-based fantasy RPG allows players to trade their loot for LTC.
- The drastic increase in cheap transactions is good for the blockchain, said LTC Foundation’s project director.
After rapidly growing for the past few days, the number of daily transactions on the Litecoin (LTC) blockchain has reached over 130,000 today—and all thanks to LiteBringer, a decentralized, fantasy game that officially launched on September 15.
“Transactions are exploding on the Litecoin blockchain!! This is due to the [LiteBringer Game] but the best part about it is everyone playing [the] game has to learn about LTC and [its] use as a currency. You can not play unless you have some lites,” Litecoin team member Jon Moore tweeted today.
According to decentralized applications (dapps) DappRadar, LiteBringer has already claimed the ninth place among the top blockchain games with a 2,584% increase in player base since it’s official launch on September 15. In the days prior to the game’s release, the number of daily Litecoin transactions hovered around roughly 35,000–50,000.
While recording every in-game move as a transaction may be seen as “spamming” the blockchain, Litecoin Foundation’s project director David Schwartz argued that the recent increase in transaction count actually benefits the network.
“So has the Litecoin blockchain benefited from the increase in [transactions], but decrease in median LTC [transaction] value? YES Litebringer from CipSoft has brought additional attention and usage of LTC, through micro [transactions] via legitimate gaming,” tweeted Schwartz.
Bringing the Lite
LiteBringer has been in development since 2018 by CipSoft, a studio best known for browser game Tibia Online that launched back in 1997—and still has active players (At the time of writing, more than 7,600 users were online).
CipSoft’s latest project is an “idle” fantasy role-playing game, a genre mobile gamers are quite familiar with. This means that most of the time players assign tasks to their fantasy adventurers—for example, to go on a quest or mine resources—and wait for them to finish.
According to the developers, Litecoin was the blockchain of choice from the start thanks to its low transaction costs and the lack of fee spikes. Another crucial factor is block generation time as every players’ move is basically a transaction on the blockchain. This is why Bitcoin, for example, wouldn’t suit LiteBringer’s needs—players would have to wait at least 10 minutes until the game recognizes their commands.
“Every game operation is stored in the blockchain. Because this can only be done with a tiny transaction, LiteBringer is very vulnerable to spikes in transaction fees. If there is a spike–which happens in Ethereum from time to time, our game would become unplayable for this period,” CipSoft explained.
As Decrypt reported, items in LiteBringer can be traded on the in-game market for LTC, so players can turn all their hard-earned loot into real money. The game also requires a subscription of roughly €1 worth of LTC per month.
Speaking to Decrypt, LiteBringer’s community manager Constantin noted that while it’s obviously too early to make any long-term predictions at this point, the team behind the project hopes that it can help promote the adoption of blockchain and cryptocurrencies beyond the decentralized community.
“It is one of our main goals to reach people beyond the blockchain community. We don’t want to create and demonstrate just another use case for cryptocurrencies and blockchain technology. We wanted to make an intricate, well-crafted game!” he said.
Ethereum transaction fees are getting out of hand lately, making its dapps too costly for average users and creating a golden opportunity for Litecoin.
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