Trading 101: Trading The Crypto Bear Market Using Price Action Techniques

2021/11/23 11:52:27

2021 is the year every crypto trader/investor could dream of. The volatility in the crypto market is at its peak and we should be taking advantage of every price movement irrespective of a bear or bull market. We have discussed many strategies for going long in the crypto spot market and trading a market that is moving sideways. But do you know that you can also go short in the crypto market? In the spot market, buying is the only option but in the crypto futures market, you can go both long and short just like trading the Forex market. As the crypto bull run has paused for a while, now is the best time for all the crypto traders to make the most of this temporary bear run by betting on the downside.

As crypto traders, we often use various approaches to trade the markets. Methods such as indicator-based trading, chart patterns, or candlestick patterns are popular among the others. Although all of these methods are credible, price action trading is always considered the most logical way of trading any financial market, including cryptos. To help our readers with their crypto trading, we have successfully developed some of the best price action strategies to trade cryptos. In this article, let’s understand what they are, and how to trade them like a professional crypto trader.

Shorting Crypto Futures Using Price Action

Strategy 1 - Entry After The Pullback

A pullback is a pause or a moderate drop in price action from the recent peak in an ongoing trend. This pullback duration usually depends on the market sessions or when the market movers are satisfied enough with the pullback. Follow this process to make an accurate entry during temporary pullbacks in a downtrend. The first step is to mark the most recent lower high in a predominant downtrend. Look for the prices to spike above the most recent lower high. After the quick recovery, look for the dynamic resistance area to take an entry.

The price chart below represents a predominant downtrend in the Polkadot cryptocurrency.

Polkadot Price Chart on the 2H Timeframe on KuCoin | Source - DOT/USDT

In the below chart, we can see the market being in an overall downtrend. The quick spike above the most recent lower high indicates that some buyers attempt to take the prices up. However, a quick recovery from there is a sign of the sellers being stronger than the opposite party. The hold at the resistance zone implies that the price action respects this significant area, and going short at this point will be beneficial.

Trade Entry on the Polkadot Price Chart on KuCoin| Source - DOT/USDT

After our entry, we can notice the price gradually going down and witnessing a brand new lower low. We placed the stop loss just above the previous higher high, but please consider placing a tighter stop-loss if the buyers are not aggressive enough at the resistance level.

Strategy 2 - Trading Range Breakouts

In this strategy we must identify a crypto asset class that is in an ongoing downtrend. Look for any small spike and quick recovery above the most recent lower high. We must then draw a range and find the pin bar spike at the bottom of a range to go short.

The price chart below represents an ongoing downtrend and a minor consolidation in the BTC/USDT crypto pair.

Bitcoin Price Chart on the 1H Timeframe on KuCoin | Source - BTC/USDT

In the below chart, as you can see, the market turned to a consolidation phase after a brief downtrend. This essentially means that both buyers and sellers hold equal power at this point. We can then observe the market printing a pin bar candle at the S&R area. This is exactly where we chose to go short.

Trade Entry on the Bitcoin Price Chart | Source - BTC/USDT

If you identify any range in a down-trending market where the price finally breaks out by printing a pin bar, always apply this strategy as it is very reliable and lucrative.

Strategy 3 - Counter-Trend Trading

To trade this strategy, we must first mark the most recent lower high and draw a resistance line. We then let the price go above the resistance line and look for recovery below it. Then we must wait for the correction to move towards the support area and draw the breakout line. Finally, wait for the breakout to the downside and go short as soon as it happens. Typically, pullbacks have a couple of legs. We must never use the first leg to trade the market. Instead, we must wait for the second leg to trade the counter-trend moves.

The below price chart represents counter-trend moves in the Ripple (XRP) crypto.

Trade Entry on the Ripple Price Chart on KuCoin | Source - XRP/USDT

As we can see below, the market was in a brief uptrend. We can see the price going up, crossing the resistance line, and then coming right back down. This indicates that buyers tried to go above but gravitated back immediately towards the resistance line. At this point, we can conclude that the sellers are back in the show.

Trade Entry on the Ripple Price Chart on KuCoin | Source - XRP/USDT

After the first and second legs, prices again tried to go higher, but they respect the resistance zone. The breakdown indicates the sellers are now ready to go for a new lower low. The holding below the resistance line and the breakdown at the significant level indicate how aggressive the sellers are. Going for a smaller stop just above the resistance level is beneficial. Consider booking profits based on how the market moves. However, you can pace the take-profit order with 1:3 RRR if all the given rules are respected.

Bottom Line

Crypto markets are highly volatile, and it is both good and bad at the same time. Good because we can make more profits if the trade goes in our direction. But there is a high risk of our accounts getting wiped out in a single trade in any adverse scenarios. All the strategies we have explained in this article are well proven and thoroughly back-tested by professional traders. However, consider mastering them on a demo account before applying them to the live markets. Ensure accurate risk management techniques to maximize profits and minimize losses.

Stay tuned and watch the KuCoin Blog for more interesting and valuable educational content. All the best!

Did you know that KuCoin offers premium TradingView charts to all of its clients? With this, you can step up your technical analysis and easily trade your favorite cryptos even in the bear market.

Notice: KuCoin does not provide financial advice. Please do your own risk assessment when deciding how to invest in cryptocurrency and blockchain technology.