Bear markets are strange beasts while they do present unique opportunities for the astute amongst us. Bear markets are also fraught with risks that otherwise wouldn’t exist. Risks that could get you even more wrecked when placing the wrong bets. In this guide 10 of the biggest mistakes that you can make in bear market conditions. Crypto trading tips today for bear markets and the mistakes to avoid in bad bear markets are provided below. Most successful crypto traders follow these tips.
7 Crypto trading tips | Mistakes to Avoid
1. Buying the Dip
The first and biggest mistake you can make in a bear market is to try and time the market or buy the dip. This is not something that’s specific to crypto and it can be applied to nearly any market out there. When you’re in a peak bull market prices tend to follow the trend. Indeed you might have heard the expression the trend is your friend. Well, that usually applies to the downside as well. Momentum is a powerful force in the markets and investor sentiment is hard to turn around when markets are trending lower. This has also been likened to catching falling knives. Although you think an asset may be undervalued the markets can keep dumping said asset for much longer than you can stomach.
2. Dead Cat Bounce
The second number of Crypto trading tips is something that you have to be careful of is the dead cat bounce. As the name suggests these are temporary market reversals that you think might indicate a turning of the tide but are really nothing more than a temporary upswing that can leave you wrecked when it runs out of steam. All these factors combined with all the hopium and FOMO that tend to get flung around mean that buying the bottom is incredibly hard to do.
Therefore, if you really think that an asset is attractively priced and you would like to start accumulating it then you may want to consider a DCA (dollar cost average) approach. DCA is a tried and tested method of slowly accumulating an asset over time in small regular buys that average out the buy or sell price and smooth out the volatility
3. Never Buy at ATH
The most important in this crypto trading tips is never to buy any crypto at its all-time high price. If you want to slowly buy into a cryptocurrency because it’s cheap you have to be careful of making the next mistake and that is basing your valuation metrics on cryptocurrency prices that you experienced in the bull market. This means that never buy at the strongest bull runs. your perception of a cryptocurrency’s value is determined by your experience in that bull market because a cryptocurrency is at its all-time highs by over 90% does not automatically mean that it is attractively priced.
In fact, there could be a strong chance that it’s still overpriced because in bear markets people’s expectation of returns on all asset classes is adjusted down considerably. Unlike stocks which have cash flows that apply to them. Crypto is more speculative and hence the price itself is based on near-binary outcomes i.e either it has great long-term success or it fails.
In the 2018 bear market, there were some cryptocurrencies that were well off their peak and may have appeared cheap but never recovered. For example, iota, dash, and bitcoin cash all reached their all-time highs around the end of 2017 but fell around 95% to their bear market lows, and sadly they have never recovered. If you had bought these coins based on historical assumptions of their value, you would have missed out on some of the largest gains in other altcoins in 2020 and 2021. It’s fair to say that some of those hot altcoins that reached dizzying highs during this most recent bull run have seen their best days. If they do manage to recover those gains it may not be anytime soon. This actually ties into the broader question of expectations for this market.
The unrealistic expectations also lead to bad budgeting during times like these having all your funds in an alternative asset class like crypto in the hope of hypnotic gains is not a safe way to play. It’s essential to have an adequate buffer to hold you over for the rest of the bear market. Make sure that you have enough funds to support yourself outside of the crypto space. Moreover apart from the perspective of investing decisions unrealistic expectations about potential returns are not happy from a mental perspective. Either placing your faith in the potential of a coin to pull bull market moves in a bear market is going to leave you frustrated and dejected. Prefer low expectations about returns in a bear market. When you invest in a particular coin or token, assume that prices are likely to remain depressed for at least a year or more. Just focus on the fundamental investment and forget to try it yourself it could help to ease a lot of your crypto-related anxiety.
When it comes to asset allocation in a bear market, you need to completely rethink the weightings of your portfolio. Because in bear markets participants tend to gravitate away from altcoins. Because in times of market stress investors tend to gravitate away from the high-risk high-return investments into more established assets and this is not something exclusive to crypto. Sometimes they move away from stocks entirely and into bonds etc.
If you take a look at previous bear markets during these periods bitcoin dominance shot up that’s basically because it performed better than altcoins. You can also take a look at the bitcoin price of some of your favorite altcoins during these periods relative to BTC they have been on the decline and this includes ETH. We also cannot ignore historical data as we’ve endured past crypto bear markets and those periods can be instructive. You also can’t view past bear markets as scripture because it may be different depending on some other factors.
4. Global Macroeconomic Backdrop
Another very important factor in Crypto trading tips is the economic situation of the world. The two most recent crypto bear markets were from November 2013 to January 2015 and from December 2017 to January 2020. They were mostly caused by factors specific to the crypto market hype that reached a fever pitch followed by painful periods of consolidation. However, during those times the macro environment was relatively stable. In the 2013 bear market, the fed’s fund rate was near zero and in the 2018 bear market, the rate reached a max of 2.4%. Before the fed started bringing it down towards the tail end of 2019. Also, the inflation was low and stable. There wasn’t a war in Europe and corona was a beer things are a lot different. Today we are rushing into a rate-tightening environment the likes of which we haven’t seen for decades.
The high inflation conditions that crypto has never experienced before. The most recent global recession was back in 2008 and that was before bitcoin launched. It means you shouldn’t view the past as fully indicative of future returns. This comes not only from the potential performance of cryptocurrencies but also from the length of this bear market. Some think that it could last as little as a year others think that it could extend all the way out until the next bitcoin halving.
5. Pay attention to Fully Diluted Valuation (FDV)
The next mistake that you can make the term exit liquidity is used to define those situations where insiders and institutions will use retail investors as a means to exit their positions to dump their bags into our unsuspecting hands. Sometimes this is a result of coordinated actions by those insiders but often it’s just a matter of some of these early investors having their tokens vested or released to them given that we could be entering a bear market of at least a year.
There are many projects out there that will have token unlocks in some instances. These early investors will be sitting on some healthy unrealized gains, which will only be effectively realized on those unlocks. It means they are more likely to want to sell these unlocked tokens in this bear market than Hoddle them. You have to pay extra special attention to those projects that have a large unlocked supply. You can get a sense of that by comparing the fully diluted value or fully diluted marketcap to the actual marketcap. It gives you an indication of how much the market cap would be where all the supply is to be released. There might be a situation in which these early investors are looking to huddle and not liquidate all. You need to pay extra attention to a project’s FDV and its vesting schedule.
6. Price Predictions
The price predictions in crypto should be taken with a truckload of salt. Because it can be incredibly hard to predict assets like cryptocurrency. Those Price Predictions models and analysts who have previously been incredibly accurate have been invalidated by this bear market of 2022. Many of us have made predictions in the past that have proven to be less accurate. The predictions based on key technical indicators and other analyses are the best guesses to the potential price of a cryptocurrency. But these all are guesses and you shouldn’t follow anyone’s predictions religiously. You should follow a range of different analysts and gain information from a broad set of resources. The wider their opinions on the bear market the better you’re able to have a wider perspective on how the markets are likely to play out. This can all be easily summarized by the do your own research.
7. Giving Up on the Bear market
The final mistake that you can make in a bear market is giving up and it’s one of the most common traps. People who are lured into the crypto space by promises of large gains and nothing more they are called crypto tourists because give up in bear markets. The good times and the bad times are like friends because bear markets are where the best long-term gains are generated. During bear markets where people and projects spend the most time learning and building free from the hype and FOMO that permeates a bull market. Many people gave up in 2018 due to the bear market and the most amazing promising crypto projects being built in 2019 including the concept of DeFi. Over the past two years, Defi has radically transformed crypto. Focus on fundamentals and refine your own personal investment thesis. During bear markets, we get a maximum FUD, and the mainstream news is going to be throwing headlines. But if you can tune out the noise and focus on the fundamentals then you are well on your way to long-term gains.
Conclusion to Crypto trading tips
To jump into crypto trading as a business you must follow the above Crypto trading tips. Before getting into cryptocurrency you should know about the ups and downs of this market. Some other content that can help you in choosing the right investment.