In bearish market times even the most skilled of traders are inclined to refrain from participating. But in spite of volatility and plummeting prices, veteran investors see this as a great opportunity and a way to make the more profit out of a market downturn.
There are a few strategies they apply to make income during times of crypto market turbulence. Today’s article will present some of them and how you can use them to make the most of current market opportunities.
Arbitrage
Arbitrage is when you buy something and then immediately sell it for a profit. This can be done by taking advantage of price variations found between different marketplaces. Arbitrage relies on exploiting market discrepancies and is also used in other markets, including the stock and FOREX markets.
The crypto world generated a unique environment for arbitrage. According to William Belk, the combination of its distributed nature, regulation, security, and anonymity results in many market inefficiencies, and that “arbitrage opportunities will continue indefinitely.” For instance, some markets pay extra for security, geographical region, or they just didn’t find it cheaper somewhere else. In certain situations, the prices can vary as much as 43% between different exchanges.
To apply cryptocurrency arbitrage, you must find a crypto asset that you can buy at a price less than you can sell it on another exchange (minus the fees and commission). Once you have found the prices you were looking for, all you need to do is buy on the lower-priced exchange and sell on the higher-priced one at the same time. this method can easily make hundreds or even thousands of dollars in just a few seconds if you have the capital.
Pros: Arbitrage can be implemented any time there are price inefficiencies and it has almost zero risk of losses if executed correctly. You can make excellent profits taking advantage of the market’s fluctuations.
Cons: A dedicated arbitrage software is usually required to get started. To be able to use it efficiently, you would have to have a strong technical knowledge of the different exchanges. Arbitrage trading is often based on real-time data that is accurately updated in order to do this safely. High fees on some trading platforms can also chip away from your total profit.
Follow the Trend
When it becomes too hard to predict when the price will shift direction, following the trend is strategy that will lessen the risk of losing everything. This strategy involves trading with the trend rather than with the swings.
If the market exhibits upward trends, only open long trades. If the market’s prices are going down, you only open short trades. Trend followers begin their trading after a trend has been settled, and they exit when the trend ends. This is also known as “Position Trading.”
There are several mechanisms that one can employ to maximize profits and minimize risks, such as margin trading, leverage, and stop-loss orders. Shorting Bitcoin and other cryptocurrencies can be carried out in various ways. By examining Bitcoin’s price chart for early 2018, you can see that those that identified the downward trend in mid-January and made a short trade would have had 40% profits by exiting one month later.
Pros: This risk- mitigating strategy is best in situations when the market is going up or down, and when the top or bottom of a market cannot be defined or predicted.
Cons: Crypto markets have an unpredictable nature. One must have implemented certain mechanisms to protect investments against sudden swings in asset prices.
Buy the Dips and Hold
One might wonder why should you buy and hold an asset whose price just dropped? But a drop in any asset’s price represents a great occasion to buy. Especially when they are big. If the asset is strong then the price will grow back when the market recovers. This strategy is abbreviated BTFD in the crypto community.
By analysing Bitcoin’s price over the last few years, one can observe a strong upward trend, but also moments when the price went down numerous times. Since the market is mostly made up of regular people and not professional traders, the cryptocurrency market is extremely responsive to media trends and news stories.
When positive news hits the market, people hurry to buy hyped cryptocurrencies. When the opposite happens, they panic and sell their coins at a devalued price in an attempt not to lose their entire investment.
This creates the perfect situation in which investors can take advantage and buy the undervalued cryptocurrencies.
Pros: Traders are not required to have special trading software. They only have to execute just a single trade that doesn’t require millisecond accuracy. When carried out correctly, it can generate profit from the upward trend of the cryptocurrency plus the amount it was undervalued.
Cons: This is a primarily long term tactic, and as a result it will not produce instant profits. Timing is crucial here, and this strategy requires complete understanding of market factors as well as self-control during fluctuating times.
Conclusion
When the market is experiencing discouraging values, experienced investors usually manage to close successful trades. By implementing the right strategies at the appropriate moment, one can make a profit during all market conditions. Arbitrage, buying the dip, following the trend, have all been proven to be effective strategies for many successful traders.