Crypto investors have been challenged by the recent bear market and expectations of another recession in the future. Yet, hopes for the soonest bullish trend are still there. One way or another, crypto markets are known for being extremely volatile and behaving in irrational ways. However, when crypto market prices trend downward, it makes it even more difficult to make profitable trades. Still, there are investors who want to earn a profit, not just HODL, in bear markets. Thus, crypto traders want to use any tools available to increase their chances of making profitable trades during a bear market.
What is a Bear Market?
A bear market exists when the prices of a specific asset or class of assets markedly decrease in value. When there is a 20% or more decline in asset prices, investors are in a bear market. The challenge to earning a profit is how to make money off an asset when its market price is in a downward spiral.
Bear vs Bull Market
Bull markets are favored by all investors because asset prices are constantly rising, and it’s easy to profit from investments. In a bull market, the hardest decision to make is when it is too late to buy and too early to sell. Investors want to buy when the price will keep rising and sell before the prices begin their downward trend. On the other hand, a bear market requires investors to guess how low the price will fall so that they can buy the asset as cheaply as possible before prices trend upward. The other strategies used to profit during bear markets are shorting assets, using Dollar Cost Averaging (DCA), and grid strategies to profit from falling asset prices.
General Crypto Trading Bot Advantages
Investing with crypto trading bots , or simply bots, is advised for investors, new and experienced. Bots help to eliminate some of the human errors that cause investors to lose money. Bots can be programmed to buy and sell crypto assets using the trading strategy that has been programmed into them. Several benefits of using them are their consistency, effectiveness, rapid implementation, and 24/7 trading. In addition, the bots do not become emotional about the market, regardless of the trading losses and gains.
The Crypto Trading Bot Edge in Bear Markets
Crypto investors who use bots in bear markets have a considerable edge over investors who don’t use them. The bots and the platforms that host them provide numerous services and analytic tools that decrease the amount of time, energy, attention, and effort needed to analyze the market and therefore make profitable trades. These enable market investors to make the best trades in an unpredictable bear market.
Let’s look at some ways crypto trading bot users can increase the profitability of their trades during a bear market.
Market Analytics
Investors can easily access and use trading signals that are generated by their bots or the platform on which the bots operate. Trading signals like the Williams Fractal, Bollinger Bands, Relative Strength Index, Smooth Moving Average, Moving Average Convergence Divergence indicator, alligator lines, candle sticks, etc., can be used separately or in combination to make the best crypto trades. These trading signals are often used together to confirm trends predicted or observed in the market.
Although traders are able to interpret and use these signals, they are time-consuming to produce and keep updated. So, when a bot provides these trading signals to its coder, the trader using the bot has more market tools at hand when trading crypto assets in a volatile, bear market.
Stop Loss and Trailing Loss Orders
Traders can make profitable trades by buying low and selling high (a.k.a. short selling). In order to enter into these contracts at the best point, bots can be programmed to select different price points at which the trader thinks a profitable trade can be made. Since this kind of trading strategy is risky and speculative, traders should have stop loss and trailing loss orders in place to reduce their risk and potential losses if the market changes direction.
One-Stop Trading Platforms
Some bot platforms give their users the option to trade on multiple platforms while remaining logged into only one platform. This enables traders to have access to multiple platforms without logging into them or moving between different websites. Moreover, this also makes it easier and faster for traders to buy and sell assets on different platforms at the same time.
TradingView and Custom TradingView Signals
This feature, when activated, permits traders to stop and interrupt trades when there are market signals that indicate the trade would not be a profitable one. So, in addition to the programmed bots, you have other tools available to support the bots and prevent ill-timed trades that are technically allowable given the bots’ coding.
Backtesting and Live Market Testing
When developing the trading strategy to employ during a bear market, traders should do backtesting to make sure that their strategies would have worked during previous financial periods with similar characteristics. Furthermore, when performing the final tweaks and before the implementation of the code, traders should do live market testing using imaginary money to make sure that it would be profitable if implemented in the current market.
Dollar Cost Averaging (DCA) Strategy
Using the DCA strategy, traders divide up the total amount of money they want to spend on purchasing an asset across several periods. This is done to reduce the impact of the market’s volatility on the market price of the desired asset. To achieve a profit, the trader decides at which price point all the purchased assets will be sold. Crypto trading bots make it easy to set up and implement this strategy.
Grid Strategy
With the grid strategy, traders use an automated program to purchase the desired crypto asset at pre-specified prices. When the asset’s market price drops to a specified price level, the program is triggered to purchase the asset. As the asset’s market price continues to decline, the program will be triggered to purchase more of the asset. This strategy differs from the DCA because, when the asset’s market price begins to rise, the program will be triggered to sell off the purchased crypto asset based on the price at which each of the acquired assets were purchased. This method guarantees that the trader makes a profit on all the crypto assets purchased as the crypto asset’s price declined during the bear market.
Conclusion
Overall, automation of your crypto trading is a key to profitable crypto asset trading during bear markets, same as during bull markets. However, bots are not capable of doing autopilot market analysis, reviewing its performance or paying attention to changing market trends. Crypto trading bots are tools that make it easier for you to make profitable trades in a challenging market—tools that complement but cannot replace the human intelligence, intuition, experience, and know-how that creates them and their triggers.
