The crypto market ebbs and flows with volatility, creating endless opportunities for buying, selling, and taking profits when the time is right. But, does this also apply in a bear market, a period of time where prices fall significantly and market confidence plummets? Yes, fortunately!
It’s surprising how many new traders are scared of bear market and don’t consider it as a great opportunity. Yes, many people heard that professional traders can make money when markets are growing and when market are falling, but they don’t really know what are the actual steps to take. In the present article we are going to explain the trading mechanics on a very basic example. We are not going to borrow money, we are going to make money using assets that we already own.
A bear market can actually be a great source of long-term wealth creation for traders. The fact is, for experienced traders, a bear market is nothing out of the norm. It has happened in the past, and it will happen again – and it offers great opportunities to make money. But how? Keep reading to learn more about how you can benefit from falling crypto prices.
Illustrative Example – Complete trading cycle
Below we’ll give you an example of successful “shorting”, but this time we are going to explain the complete trading cycle. The trader James was trading Bitcoin and Ethereum for dollars (USDT). He realizes that price is most likely going to correct, so he decides to sell his BTC and ETH (0.5 BTC at 44900 USDT and 10 ETH at 3043).
Later, his analytics looked like the screenshot below:
The price of Bitcoin went down, while the price of Ethereum increased. Thus, buying Bitcoin at this price would make a profit of 3 % or 653.38 USDT, while buying back Ethereum would make a loss of 2.54 % or -792.8. This is how CoinPanel-Analytics can be helpful in evaluating one’s positions against the current price. In our example above, James decided to immediately close his short position for Bitcoin at market, and then bought back 0.5 Bitcoins at 43565.35 which is even better. He also placed a small buying Limit order for 0.01 BTC at price of 43000. And by the evening, the price went down and the order was executed. Next day his analytics looked like:
This shows that James has sold 0.5 BTC for a total of 22450 USDT and that he later bought back 0.51 BTC for a total of 22212.67 USDT. Simple math shows that he managed to get more BTC than he originally sold. And, at the same time initially he received more USDT than he has spent later. But with new analytics those calculations are not necessary, they are done automatically on the “Pair Performance” card.
From selling BTC and then buying it back again, James made a profit of 0.01 BTC and 234.32 USDT. This is a good example of how a good trade can result in an increase of deposit for both assets. But what about Ethereum, where James placed a grid of Buying limit orders at prices between 2800 and 2400 (it was a realistic expectation) and waited? In a few days the Ethereum price went down to almost 2200 USDT, only to quickly recover. The result? All of James’ limit orders were executed.
James analytics stated to look like:
Note that the current price is 2.2 % higher than the original price, at which James has entered his short position. The way he managed to lower the buying average to 2518.32USDT with a grid of limit orders is really impressive. Before we get into calculation of his final profits there is one important thing to note about Analytics: Analytics doesn’t care whenever the trader is still in a position. The trader provides a date, when he entered a position and optionally the date when the position was closed. Analytics then suggests what the outcome of closing this position at the current price will be. On the above screenshot, we can see that for the SELL (when assets were originally sold) it looks like buying back would be at loss at the current price. However, this position doesn’t exist anymore since it was already closed. But the date was chosen to be the date of the original short in order to show how the complete trading cycle has affected the final deposit.
At the same time, analytics shows that the current buy position is at significant profit +23.58 %, and if James is still holding those Ethers, he may take a decision to sell them now. This means that it might be a continuous loop of buying low and selling high – which is what the trading is all about. This example can be continued further and further, but for the illustrative purpose, we will finish off with a complete trading cycle. So – what is the outcome according to analytics?
SELL is when James entered the selling position (by selling Bitcoin and Ethereum) and BUY is when the position was closed. And since position is already closed, two lower cards may be helpful in evaluation of the final results:
According to the “Pair Performance” card, by trading ETH-USDT James managed to make a profit of +1 ETH and +2735.53 USDT. This is purely based on the trading history and independent of current prices. And from trading BTC-USDT, James made +0.01 BTC and +237.32 USDT. And the “Asset Performance” card shows the final change on deposits of assets involved in these trades: +0.01 BTC, +1 ETH and +2972.86 USDT. The conclusion? This was a profitable trading cycle on a bear market!