Be[In]Crypto Video News – Advanced Crypto Investing Strategies to Survive a Bear Market

In this episode of Be[In]Crypto’s Video News Show, host Juliet Lima offers three advanced tips for surviving a crypto bear market. She offered some basic suggestions for trading during a bear market in an earlier video.

Selling covered calls in a bear market

According to Juliet, options trading can be tricky but it’s a great way to make a profit in a bear market. An option is a type of contract that offers the buyer the opportunity to buy or sell an underlying asset at an agreed-upon price and date, depending on the type of contract they hold.

There are two types of options. Calls and puts. Calls give the option holder the right, but not the obligation, to buy the underlying asset at a set price on or before a particular date. On the other hand, puts give the option holder the right but not the obligation to sell the underlying asset at a set price on or before a particular date. In other words, a call is the right to buy, a put is the right to sell.

The agreed-on price of the underlying asset has a specific term, it is called the strike price. The agreed-upon date also has an official term, called the option expiry date. The price of the option itself is called the option premium. A premium is a price the buyer pays to the seller, for the right to trade the asset at the strike price on the expiration date.

American or European options?

There are two styles of options: American and European. With American options, the buyer can exercise the contract at any time before the expiry date, while with the European variety, the buyer can only exercise the contract at the moment of expiry.

Let’s go through an example in which we sell a covered call option. In this case, we will use bitcoin, but any asset could work, and the option style will be European, meaning the buyer can only exercise the contract at the moment of expiry.

The reason we are choosing to sell a call option here is that we are bearish on the overall price of BTC, if we think that the price will remain right around where it is, or possibly even drop lower, and would like to make a profit off this hunch. If it does rise substantially, which is the risk we are taking, we would have to sell our bitcoin to cover the difference.

If we believe bitcoin is very unlikely to go over $45,000 within the next 30 days, we would want to sell a $45,000 call option with an expiry of 30 days. The buyer of this call option would pay a premium, or a price, to us for this options contract.

If at the end of 30 days the price of bitcoin is less than 45,000, the call will have expired at less than the strike price, thus becoming worthless. Our call will be sold, meaning we made a profit from it. The contract has expired, and we pocket the premium paid as profit. However, if the price of bitcoin is higher than the strike price upon expiry, the difference must be paid to the buyer of the call.

Elliott wave theory

Next Juliet suggests the Wave Theory created by Ralph Nelson Elliott. After analyzing 75 years of stock market data, Elliot derived wave theory as a form of technical analysis that looks for long-term price patterns related to the sentiment and price psychology of investors.

The analysis focuses on identifying extremes in high and low prices. Many people think Elliott wave analysis is perfect for crypto because most of the market participants are driven purely by psychology, ranging from the euphoric highs of the bull run to the fearful selloffs of the bear market.

Elliott wave theory relies on something called fractals, or mathematical structures, which on an increasingly ever smaller-scale repeat themselves. The “wave” makes 5 swings in the direction of the larger trend and three swings against it. So in a bear market, if we follow Elliott wave theory, there will be five downward waves followed by three upward waves.

Elliott wave theory’s principles can be applied to help forecast reversals. It’s not the most obvious method to learn, and it certainly has its detractors. They mainly cite an inability to find the correct beginning and end of waves, which is indeed rather difficult. But it also has its proponents, and if applied correctly it may provide an edge when this bear trend finally switches direction.

Crypto zen

Finally, Juliet reminds us that we are all human. We all have shortcomings and inadequacies. When we are confronted with the possibility of absolute loss, it becomes natural to want to turn away or to escape.

However, if one can remove themselves from the situation emotionally, they can achieve a state of complete peace over their crypto. There is no need to try to perfectly time trades. There is no need to sell. In the face of all the negative talk surrounding the crypto crash, true crypto adherents buy more. They know that crypto is the future, and they’re going to be part of it.

This is an advanced technique because honestly there are only a few people that can successfully do it. Not many people can remove their emotions from investing and be grateful for the crypto they have. 

All these techniques carry their fair share of risk, Juliet recalls, so make sure you do your own research before attempting.