Challenges When Trading Crypto Corrective Structures

Given the cryptocurrency market had been trading on the downside for the past several weeks, finding good trading opportunities had been a bigger challenge for market participants. Taking advantage of downside movements in crypto, in this case, is not easy, considering the price action development is choppy and support/resistance levels don’t have the same meaningful influence they usually do in a well-defined trend.

# Dealing with volatility

One of the first challenges arising, in this case, is when volatility is on the rise. Usually, when the market starts to retrace lower following an uptrend, volatility increases, with major implications on trade locations, risk management parameters, and target setting.

Crypto-based derivatives are some of the best tools to get involved in the market during such periods, considering their purpose to take advantage of short-term price movements. Still, that does not negate the challenge arising from a volatile environment. When the market starts a counter-trend move, it is difficult for us to know whether that’s just a small retracement or a much bigger trend under developments. That is why dealing with volatility requires a step-by-step approach.

# Finding an optimal entry

The second most important challenge has to do with the entry location for any given trade. If we choose to take advantage of the corrective move, market players looking to rejoin the already-established trend can stop us out of the market. If we treat the corrective move as an opportunity to rejoin the trend, it could continue to unfold and even though the original trend will eventually continue, we will be stuck in the negative for a longer period. Timing correctly the entry point will be one of the most difficult tasks to master, even after you’ve become a professional crypto trader.

# Remaining confident

As traders, we are not able to anticipate all market moves and because of that, we must be willing to accept losses. However, not many traders are able to develop this mindset based on probabilities and any loss encountered is actually a hit to their confidence. When the market is in a corrective move, the price has no directional bias and because of that, most of the losses occur during these periods.

As a result, it would be important to pay close attention to your emotional state, because it could be dampened when the market does not move impulsively. Although it is frustrating to see the market consolidating or not performing as you expect, this is part of the process and we must embrace any price development as it is.