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How to Take Advantage of Downside Movements in Crypto


The cryptocurrency market had been in a corrective phase for the past two weeks and generally, when this is happening, buyers are very frustrated. However, it is important for us to understand the markets can’t go up in a straight line, and these “price adjustments”, as long as they are limited, come with benefits in the long run. Bitcoin buyers were taken by surprise by the latest price drop, but that does not mean it has to be the norm for everybody. It is possible to take advantage of downside movements and that would be the topic for today.

# Cryptocurrency trading

Now that cryptocurrency trading is available via a multitude of brokerage houses, shorting the market is an opportunity to take advantage of the price when it drops. Although short-selling comes with a high cost of opportunity (when we short, the price can drop maximum 100%, while on can go up indefinitely), with the right timing and a good trading strategy, traders are able to spot market conditions where corrective moves are the most likely outcomes.

When prices overshoot, they tend to get back to the mean, and only price action traders can spot these conditions. At the same time, taking advantage of cryptocurrency price drops is now possible via futures contracts, CFDs, or options. Having long-term exposure on crypto, combined with short-term hedging against downside moves is another way to use crypto trading at your advantage.

# Portfolio adjustment

Cryptocurrency corrective moves don’t occur evenly across all tokens. Some weaken more than others and in case you are an investor with long-term goals, cryptocurrency selling might distort your asset allocation mix. As a result, it is important to buy or sell tokens, so you will keep the same balanced market exposure, in line with their investing strategy. The key will be to time correctly when the corrective move had ended, so the market won’t continue lower after you adjust the portfolio.

# Looking for attractive valuations

Ultimately, crypto market corrections are opportunities to get in at attractive valuations, for someone believing that in the long run, the market will go a lot higher. If that’s the case for you, looking at new opportunities would be the main task when prices are moving lower. Keep in mind that emotional trading (FOMO, FUD, etc.) are generally exaggerating market moves in the crypto space, and that only means investors, with the right timing, can increase their portfolio exposure by buying cheaper tokens.