Crypto Trading 101 | How To Trade Crypto in a Bear Market

Learn how to trade crypto in a bear market with effective strategies, technical analysis, and Cryptohopper automation for the best outcomes.

All financial markets have a ‘ bull season’ and a ‘ bear season’, which depend upon a variety of factors. Cryptocurrency markets also alternate between markets moving up (uptrends) and markets moving down (downtrends). Traders can secure profits when the prices of cryptocurrency markets are going up.

But what about when in a downtrend?

In cryptocurrency markets, it is absolutely possible to profit from a trade when the underlying trend is NOT working in a trader’s favor. In other words, traders can make winning bets when markets go down, if they play their card correctly.

In this article, we look at how to recognize a bearish trend or downtrend in cryptocurrency markets, the strategies for trading in a downtrending market, and how to automate them using Cryptohopper’s tools.

Financial markets, including cryptocurrency markets, have their ups (bull seasons) and downs (bear seasons), influenced by various factors. While traders can make profits when crypto prices are rising (uptrends), what happens when it's a downtrend?

The good news is, even in a downtrend, you can still profit from cryptocurrency trading if you make smart moves.

In this article, we'll explore how to identify a bearish or downtrending trend in crypto markets, the trading strategies that work in such conditions, and how to automate them using Cryptohopper's tools.

Analyzing Downtrends in Cryptocurrency Markets

For any trader, analyzing upcoming trends in cryptocurrency prices is crucial. It helps you make informed decisions on whether to buy, sell, or hold your crypto assets.

When it comes to trading in bearish markets, ‘ trend analysis is your ally. You can analyze cryptocurrency market trends through two main methods: fundamental and technical analysis.

Fundamental analysis involves assessing cryptocurrency tokens prices based on the project's fundamentals like its team, roadmap, and performance.

On the other hand, technical analysis relies on studying price trends using technical indicators like charts, patterns, and trading volume.

While it's impossible to predict market directions with certainty, there are technical tools that can assist. These indicators serve as guides to identify bullish or bearish market trends.

Let's explore some technical indicators that help spot downtrends in cryptocurrency markets.

Moving Averages

Before deciding to enter a trade, consider using moving averages as indicators. This tool involves tracking the price of a cryptocurrency asset over a specific time period.

There are various types of moving averages, including Exponential Moving Average (EMA), Simple Moving Average (SMA), and Weighted Moving Averages, among others.

Moving Averages (MA) consider past price actions within a timeframe of your choice. For example, a 10-period moving average looks at the closing price of the last 10 candles. If you're looking at a daily chart, it's the last 10 days; on an hourly chart, it's the last 10 hours.

You can use different lengths of moving averages on various charts.

One popular trading signal is the Moving Average crossover. To predict trends, it's advisable to use at least two moving averages.

You can spot a bullish trend when the short-term MA crosses above the long-term MA, and a bearish trend when the short-term moving average crosses below the long-term MA.

A common setup that tends to work well in the Crypto markets is the crossover of the 10 and 50 EMA.

Parabolic SAR Daily Chart

Consider using the Parabolic SAR indicator on a daily chart to spot market trends.

This indicator appears as a series of dots on a chart and helps traders anticipate when to enter or exit a trade.

For instance, some traders only take long trades when the Parabolic SAR shows a bullish trend on the daily chart. In a downtrend, the indicator can assist in setting a stop loss.

Here's how it works: Dots below the price on the chart indicate bullish market conditions, while dots above the price indicate bearish markets.

Shorting

Shorting in cryptocurrency trading involves selling a cryptocurrency asset you don't own yet and buying it later at a lower price when the market is declining. It's how you profit when prices are falling.

The good news is, with Cryptohopper, you can automate your shorting strategy. But here's the catch—it works a bit differently than traditional shorting.

For this feature, you need to own the asset first, sell it at the current price, and then repurchase it when the market drops.

Our crypto trading bot sets aside the quote currency for you, and you can manage these short positions under the 'Short Positions' tab.

You can specify a percentage to repurchase the asset, and the bot will automatically make the purchase when the price falls to your designated level.

Therefore, our shorting is more like buy-back feature.

Automating Cryptocurrency Trading in Downtrend Markets

While some traders prefer to operate in bullish markets, it's important to know that you can profit even during bearish or downtrending periods in cryptocurrency trading. The good news is, you can automate these strategies using Cryptohopper by setting up triggers.

Automating with Triggers on Cryptohopper

Triggers in Cryptohopper empower your trading bot to act automatically based on market trends.

You have the flexibility to set up various triggers right in the Cryptohopper trading interface. These triggers will automatically execute actions as the market conditions dictate.

For example, you can halt your trading during a downtrend or automate your settings for bearish markets to capitalize on price declines.

To configure triggers, navigate to Cryptohopper's Trigger configuration.

You can set triggers for individual cryptocurrencies, like disabling BTC purchases if it rises by more than 10% in 24 hours. Alternatively, you can configure triggers for a group of coins with different candle sizes.

Triggers serve as a safety mechanism, outlining specific rules for your trading bot to automate actions.

On Cryptohopper, you can utilize various technical indicators like the Relative Strength Index (RSI), Stochastic, EMA, Moving Average Convergence Divergence(MACD), and more to create triggers.

Here's how it works in the trigger configuration: You set the conditions for when the trigger should activate, and then you specify the subsequent action for your trading bot.

These actions can involve buying or selling a crypto token, holding the coin, or even switching to a different trading bot template if the market takes a bearish turn.

By using triggers in Cryptohopper, you can optimize your potential for profits while minimizing risks in cryptocurrency trading.

Specifically, with EMA triggers and Crash Protection triggers in Cryptohopper, you can fine-tune your parameters to maximize profits and minimize losses.

Instead of completely disabling your trading, consider setting up a template for bearish market conditions that your trading bot will automatically activate.

For example, you can define the long and short MA settings and let Cryptohopper trigger actions when they cross, signaling bullish or bearish market trends.

The Bottom Line

Trading in cryptocurrency bear markets requires a distinct strategy. Here are the key takeaways:

Market Trend Analysis: Understand bearish trends through fundamental and technical analysis.

Technical Tools: Use indicators like moving averages and Parabolic SAR to spot bearish trends.

Automation: Cryptohopper allows automated shorting and triggers for risk management.

By employing these strategies, you can navigate bear markets effectively, potentially profiting from declining prices while managing risk.