However, volatility is a common reality for cryptocurrency traders. Many have devised strategies to deal with periods of uncertainty and volatility as opportunities.
Evgen Verzun (founder of HyperSphere.AI) said, “Volatility can be traders’ best friend because they make their money from price fluctuations, selling high or buying low.”
Theoretically, more volatility means more money, but it’s also the same with risks. Traders should adapt their strategies to the new reality. This usually means that you need to reduce working capital and leverage in order to lower volatility.
Although “uncertainty” can be a time of great opportunities, traders need to remember that greed and growth of potential profits can blind them and make them forget about the risks. It’s not a good time to trade in periods of uncertainty or recession with large leverages. Awareness of market risks and risk management are key.
There are many ways to position [portfolios] to meet the volatility waves
David Waslen (CEO and founder of HedgeTrade) also stated to Finance Magnates, “crypto traders who tend to see volatility as normal have many potential opportunities to remain profitable during today’s Coronavirus crisis.”
Waslen believes that there are many ways to position portfolios to meet volatility waves, and also to earn additional crypto to increase holdings.
Waslen offered several strategies to weather the storm. He said that traders should be aware of the recent massive liquidation on crypto markets.
How can traders make the most of this trend? Waslen stated that there are two things you need to keep in mind: the fact that Bitcoin, other cryptocurrencies, have been so closely associated with assets in other, “traditional” markets and trading derivatives, particularly crypto futures contracts.
Profit from crypto derivatives and don’t hesitate to switch sides
“[…] Even if you’re (and want to stay) long on Bitcoin it’s important not to over-leverage as the world changes on a daily basis.” Waslen warned. “Technical analysis and fundamental analysis could be out of date at a moment’s notice.”
He said that “in the recent months, there’ve been huge dips correlating with the drops in S&P 500 global markets” “Cryptocurrencies are not always in line with traditional market trends. However, due to the global economic crisis and COVID-19 crypto traders are liquidating to cash to prepare for tougher times.
Bullish Bitcoin traders need to be ready to change their minds: “If [traders] have been long Bitcoin but they see massive sell-offs caused by fears of economic collapse, then they might want to respect current trends, switch sides, and short Bitcoin.”
Jose Llisteri (co-founder and chief product office of Interdax cryptocurrency derivatives exchange) told Finance Magnates that crypto traders can use derivatives in volatile markets to remain profitable by going long or being able to profit by falling markets by going shorter.
Llisteri also explained that traders can use derivatives to hedge their losses.
He said that shorting BTC-USD can help reduce the downside risk of HODLing. This is a great way to decrease exposure to BTC, increase exposure to USD and avoid having to actually sell your coins.
Fear and greed should be avoided
Investors may be reacting with more emotion to the extreme circumstances of many financial markets across the globe, not to mention the life circumstances most of us find ourselves in.
David Waslen says that traders should not allow fear and anxiety to drive their trading decisions at this time in history.
In an email to Finance Magnates, Waslen stated that “preparing for extremely volatile times by proactively determining trade psychology can help traders stay calm during a crisis.”
It is possible to be more successful if traders are aware that traders in the same space could be driven by fear. Waslen stated that the Fear and Greed Index was a good indicator of potential market opportunities for traders.
In the traditional sense of the word, stock prices will drop if there is a lot fear. However, when there is greed prices can rise. The same applies to crypto investments. When fear is high it’s an indicator of buying opportunities. Prices rise when greed is high.
“Looking at the Fear and Greed Index of a cryptocurrency can help you decide the best time to buy it.”