How to Reduce Crypto Losses During a Market Dip
How to make money from Bitcoin if it has recently lost about half its price and by early July 2022 was at about $20k? Moreover, most other cryptocurrencies have followed the mastodon and turned their charts down, which makes many crypto investors nervously wipe sweat droplets from their foreheads.
The most important thing is not to panic and not to take rash actions to save your cryptocurrency portfolio. When the bull leaves the scene – it is not a disaster. It is just another phase of the market, which is inevitably coming sooner or later, and you must be ready for it. Otherwise, how to trade cryptocurrency and make profit all the time without knowing how to tame the bear?
This article will share several crypto trading tips to help you feel more confident in a bear market. We will also tell you basic trading strategies when a market experiences prolonged price declines.
Crypto Trading Tip #1 — Averaging
One of the main strategies to think about to reduce the bear’s damage to your wallet is averaging. It can be considered the most affordable downside play for investors building their crypto currency portfolio for medium- and long-term goals.
The main advantage of averaging is a significant decrease in the average value of cryptocurrencies. Averaging provides a lower break-even point for an overall position and a higher profit than a position the trader has not averaged. This strategy is about how to make money from bitcoins when the price falls.
For example, let’s turn to Bitcoin’s history. In December 2017 bitcoin price reached $18k and then fell to $13k. During the short-term correction phase, traders could buy coins at consecutive levels: $17k, $16k, $15k, $14k, and $13k. So, the average purchase price was $15k. Thus, playing on the decline during the market collapse, you could get about $3k from each Bitcoin.
There is one more tip on how to not lose money in crypto trading. This strategy will bear fruit if the coin’s price turns around and starts to rise in the future. So, be careful, If the price continues to fall, averaging will only increase losses of your crypto currency portfolio.
Crypto Trading Tip #2 — Short Position
It is a profitable but risky way to make money on the decline. So if you are a newbie learning how to trade cryptocurrency and make a profit, think twice before using it.
The essence of the method is that traders borrow a cryptocurrency from a broker (margin trading) and quickly sell it at the current price. The point is that they expect this coin’s value to drop soon. So when it happens, traders buy it at a lower price, give the broker the borrowed funds, and receive income from the difference between the sale and purchase.
Many exchanges offer margin trading to their clients. But we repeat – this is a high-risk activity, and it seems simple only in theory. You should only open a short position if you are confident that the price of your selected coins will fall. Otherwise, you may incur losses, paying debts and commissions.
Crypto Trading Tip #3 — HODL
The name comes from the word hold, but in the early days of Bitcoin, one of the enthusiasts rearranged the letters, and the result was HODL (hold on for dear life). It is the most straightforward answer to the question: of how to make money from bitcoins — the one thing you need is patience.
You just hold a prospective coin for an extended time, regardless of whether it falls in value or rises. It requires a careful approach when choosing an asset — only rated as proven profitable cryptocurrencies. In that case, you can try to buy it and hold it for an extended period until the global value rises.
Bitcoin, for example, has fallen, recovered, and soared in value many times. However, after the last collapse from the November high of $69k, the first cryptocurrency has not yet returned to that value. At the time of writing, it was trading at $20.5k. So there’s no guarantee.
Crypto Trading Tip #4 — Buy the Dip
It’s one of the most popular and complex trading strategies. It involves buying an asset at a bargain price and then waiting for its price to increase. At first glance, you might say: “hey, how to earn money through cryptocurrency in another way? But it’s not that simple.
The most important thing when buying cryptocurrency when its price is falling is to catch the moment to enter the market. Figuring out when and when to buy too early is a real art.
Before using the buy the dip strategy, carefully evaluate the possibilities of your crypto currency portfolio. If your finances are sufficient and you are ready to incur losses during a deeper correction of the value of the selected crypto-asset — try to buy.
Crypto Trading Tip #5 — Use Stop-Loss
Do you want to know how to trade cryptocurrency and make a profit? The answer is always to use stop-loss signals. This tool will not prevent loss-making trades but will significantly mitigate the damage to your wallet and mental health. As a rule, the ratio of stop to take profit should be 1/3. That is, one profitable trade should outweigh three losing trades.
Crypto Trading Tip #6 — Trust But Verify
This advice applies to the bear market and crypto trading in general. Many people search the internet for how to trade cryptocurrency and make a profit. They come across many expert opinions from analysts, famous traders, and celebrities on social networks. We are not pointing the finger at anyone and do not question anybody’s predictions. Just you, our reader, must understand that though the cryptocurrency market follows certain regularities, nobody can predict with 100% probability what will happen with the price tomorrow, in a week, or even in a year. Even if you have already listened to the opinion of this expert and the forecast was correct, it is better to conduct your analysis, so you risk your money.
Crypto Trading Tip #7 — Diversify Your Cryptocurrency Portfolio
Old but golden rule — never invest all your money in one asset. Then, even if you made the wrong decision and the price of the coin drops to 0, as with LUNA, a promising altcoin, you will lose only part of your money and can cover the losses by closing successful trades in other assets. So, your cryptocurrency portfolio will always be as safe as it can be on the crypto market.
Crypto Trading Tip #8 — Use Your Forte
If you are good at playing on the upside, try to avoid trading on the bear market, and sometimes it is better just to take a break. Use this time to your advantage and study your trading history. After all, do you track cryptocurrency gains and losses? The same applies to the choice of currency pair. Sometimes, it is better to choose altcoins when Bitcoin and Ethereum are rocking on the waves and vice versa. If you still want to learn it, hone your skills on the minimum bets, gradually increasing the turnover. This crypto trading tip is simple, besides helping you avoid numerous risky situations to negate their damage.
Let’s Sum up
When the price falls, it is not the end because many strategies allow you to go over the edge and end up in the dips, such as averaging, short positions, HODL, and Buy the dip. Develop a reflex to use stop-loss and learn not to move it down. Question and analyze expert opinions, if they are correct, and you missed this opportunity, you didn’t earn but kept your money. Remember, a good trader always thinks about how not to lose money, not how to make it.
If you are seeking valuable and fair advice on how to invest in bitcoin and make money in the crypto market, visit our blog regularly. You will find a lot of insights here.