The economy is facing a bleaker outlook than the weather forecast for Wales, and few are rushing to buy risky assets. Here are some tips to weather unfavorable market conditions.
Option #1: Save cash
There is no shame in sitting on the sidelines and saving cash or stablecoins.
When bullish momentum returns, you will have plenty of dry powder to make big allocations. In the meantime, there are still plenty of opportunities to make a profit in the crypto markets as long as you trust the protocol you are using.
But isn’t this synchronizing the market, which is impossible? Possibly. But this is more about spotting general market momentum and trends rather than more focused price guidance or call reversals. Bigger trends are easier to spot. However, if that’s a bit risky, there is another option.
Option #2: Dollar Cost Average (DCA)
Have you ever been to a physical therapist with a wrist or back problem? You expect a quick and easy cure, but instead, you are given a sequence of tedious and insignificant exercises to do daily for three months.
Well, dollar cost averaging is the investment equivalent of that. It’s not sexy or even very interesting, but it has a good chance of working in your favor given a long enough time horizon. And these days, there are automated bots that do it for you, so that helps.
Related: 5 reasons why 2023 will be a difficult year for global markets
These first two options could be combined to create a strategy. For example, setting aside 50% in stablecoins waiting for bullish momentum to return and putting 50% on the market regardless of price. This tactic allows some exposure to the market, which can help resist FOMO when the market rises, even though your overall thesis remains bearish.
Option #3: Find assets that outperform
Decentralized perpetual exchanges have been a bear market darling. Following the FTX scandal, traders flocked to decentralized options, chanting, “Where can I sell?” Many opted for protocols like GMX and ApeX, which are up 70% and 50% this year, respectively.
There will always be assets that perform better during bear markets, but finding them is labor intensive and risky to go long during a downtrend. Therefore, this strategy should be approached with caution and is best used by investors with the knowledge and experience to spot a good project and apply sound risk management.
Option #4: Use derivatives
There are many strategies that use derivatives and combinations of contracts to lock in profits in downtrends and sideways markets. For example, using options to create a “bear ask spread” that allows you to earn money when an asset falls by securing a good asking price at a reduced rate.
There are also pseudo-delta-neutral strategies that advanced yield farmers use to long and short positions on both sides of a liquidity pool. This reduces their exposure to the volatility of the assets they hold so they can collect pool fees while reducing their downside exposure.
The hard part is not so much putting these strategies into practice (instructions are readily available online), but managing them and sizing your position. Position management and sizing can make or break these types of trades. They can be profitable in a bear market, but should be used with caution.
Option #5: Hold your head high while others lose theirs
Unless you are a free climber like Alex Honnald, I would not attempt to scale any type of cliff without good safety equipment. The same goes for crypto investing.
What security equipment? Well, an emergency fund that is held in cash is a good starting point. It should cover around six months of basic living expenses and should not be used to earn, borrow or gamble.
Related: Bitcoin will rise in 2023, but be careful what you wish for
You should also have a sinking fund, kept in similar circumstances (read: very liquid) to pay for big expenses that come up, like car repairs or, say, being stuck in expensive Singapore for a week while your visa is delayed. exit. The sinking fund will give you that extra reserve of support so you can keep your emergency fund pristine and use it only for genuine emergencies.
Finally, recessions are tough, so remember to take care of your mental health. If you are worrying about your portfolio or constantly checking the price, then you are becoming less healthy and less likely to make good decisions when the time comes. So, go outside, turn off your computer, and play.
Develop your life outside of your investing and trading activities. If you don’t do that, where will you go when you finally do?
nathan thompson is Bybit’s senior technology writer. He spent 10 years as a freelance journalist mainly covering Southeast Asia before turning to cryptocurrency during the COVID-19 lockdowns. He has joint honors in communication and philosophy from Cardiff University.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Source: news.google.com