Downtrends To put it simply, a crypto downtrend can be defined as the overall declining price of a coin. So it is normal for any security to fluctuate between slightly higher and lower prices. However, a downtrend is also defined by lower lows and lower highs. When you view this on a graph, the general direction of the crypto cost is downwards (hence the term downtrend). It is important to watch out for downtrends, as without major changes your crypto may just be in trouble.
Every downtrend is made up of several fluctuations. Upon careful inspection, you might notice this pattern resembles a wave. Due to this observation, we’ll refer to their movement as price waves from here on out.
Downtrends are made up of two kinds of price waves: impulse and correction. An impulse wave is bigger, characterized by a significant drop in the price. After you notice this big dip in price, it is not uncommon for the price to rise slightly. This results in a corrective wave. Since an impulse wave is larger than the corrective wave, the price of your coin is still lower than what you started with. This folks, is the beginning of what we call a downtrend.
Crypto downtrends of the past
Downtrends are not always scary. In fact, they’re totally normal. Even the beloved Bitcoin has faced a downtrend or two in its past. One of the most significant downtrends in Bitcoin history occurred just last year. In 2018, Bitcoin experienced 6 consecutive months of lower and lower prices. Upon closer inspection, you might have noticed the year as a whole was not great for the coin. In this period Bitcoin lost 75% of its overall value; once having a market cap of over 480B and seeing a low of 120B at the end of the year.
There are a number of opportunities that a cryptocurrency downtrend presents; perhaps the most obvious is the opportunity to buy crypto at a price lower than ever before. This is because when crypto begins to drop, many begin to panic at the thought of losing money and sell their crypto. As supply increases and demand decreases, you (the crypto buyer) now have the opportunity to buy low.
For advanced traders, you might already know about the opportunities for shorting cryptocurrencies. Many exchanges, such as Binifex, Poloniex, and Kraken, all offer opportunities to short crypto such as Bitcoin. However, this strategy is also viewed as riskier.
The HODL Strategy
Ever heard of the saying when people cry you buy? Rather than worrying about getting out before things get worse, there is a very simple acronym you can use to avoid being the crier. You might’ve seen HODL used in the crypto community. This means when things take a turn for the worse, hold on for dear life. In doing this, the belief is the high prices will once again be restored.
How to make money
For the more advanced traders, you can also learn to trade within these crypto downtrends using short-selling strategies. Remember those corrective waves that we previously mentioned? If you happen to have been watching the crypto market, you might be able to make some predictions about which waves might be approaching. This presents you the unique opportunity to trade during a corrective-wave. You might plan to short-sell your coins with the expectation that following a corrective wave, a larger impulse wave will follow.
Mitigate the risk
You’ve probably heard this time and time again, do your due diligence. This means research the crypto downtrends as well as the history of that digital asset. Then determine how much you are willing to invest that will not put you into debt if things go south.
Holding on to your investment’s long-term can be seen as smart investing. Even smarter investing is sitting with your eggs in several baskets. This means that your cryptocurrency should be sitting in a well-diversified portfolio that includes non-crypto assets. With this type of strategy, any losses incurred will be offset by the rest of your portfolio.