One day's bull market was followed by another waterfall: How to survive in the surging and plummeting crypto market?

Original article: Jordi Alexander , Founder of Selini Capital

Compiled by: Yuliya, PANews

Just one day after the market experienced the largest one-day increase in market value in history, it experienced the second largest one-day drop in history. This extreme volatility caught market participants off guard.

Many traders suffered serious losses in this environment. On the one hand, they sold their stocks at the bottom of the market due to panic or technical structure breakdown signals; on the other hand, they blindly chased the market at the top due to a short-term rebound or good news, and finally suffered a second market crash.

In the bull market of November 2024, the market expanded rapidly as a whole, and most investors tended to go long, so it was relatively easy to make money. However, in the current extremely volatile market, it is difficult to make long-term profits by luck alone. Only investors with highly professional trading strategies can survive in extreme environments and may profit from them. They usually adopt the following strategies.

Cash is king, liquidity is the priority

In highly volatile markets, it is critical to hold sufficient cash, even at the expense of some expected return (EV) to ensure liquidity.

Take investment management company Jane Street as an example. The institution has long invested in deep out-of-the-money put options. Even if it faces continuous losses in the short term, its ample liquidity enables it to acquire the wrongly killed assets at a low price when the market crashes. Compared with traditional financial markets, the leverage in the crypto market is more popular and the liquidity mismatch is more serious, so this strategy is particularly important.

Some top traders tend to gradually reduce their positions in the "shoulder" area when the market rises sharply, rather than waiting for the extreme peak in the "head" area. Although some upside may be missed in the short term, this strategy is more advantageous in the long run by recovering funds and improving the ability to re-enter the market at a more attractive price range.

Focus on price, not time

Top traders are usually not limited by trading time frames, but define trading ranges based on prices. For example, in the last bull market, trader High Stakes Capital posted a screenshot of his eight-digit profit in the FTX account, and his position was only established two months ago. This shows that in extreme market conditions, time is not the key variable, and the key lies in the clear setting of buying and selling ranges.

The transaction logic should be based on the following two points:

1. Determine a buying price with clear value support to avoid decisions being affected by short-term fluctuations.

2. Set a clear risk-reward ratio and target exit price , and execute the trade decisively when the market reaches the target.

Then be patient, whether it is a few hours or a few weeks, as long as the price reaches the target, execute the transaction. At the same time, you should constantly adjust your "ideal entry price" and "ideal exit price" as the market changes.

If you are too rigid in the time dimension, such as "only do intraday trading" or "only hold positions for multiple weeks", then your trading performance is bound to be limited. The core thinking mode of top traders is: "buy low and sell high", and the holding time is determined by market fluctuations.

Execute calmly and strictly follow the trading plan

In extreme market environments, the size of positions must match one's own financial strength. If the position is too large and the market continues to fall, traders are prone to psychological imbalance due to floating losses, thus deviating from the original plan.

The current market still has a lot of positive factors and ample liquidity, so it is difficult to enter a sustained multi-year bear market. This macro judgment allows some investors to remain confident when the market falls. At the same time, they do not expect a full outbreak of the "altcoin season", so they will gradually cash in profits when the market rises and patiently wait for the next round of more attractive entry opportunities.

In market decision-making, some investors adopt a psychological strategy of asking themselves when deciding whether to sell: Is there a high probability that the current price will fall again? If the answer is yes, it means that this point is not the best entry opportunity, and it is appropriate to wait and see and wait for a better risk-return ratio window to appear.

Market Practice: Trading Strategies in Volatile Markets

Take Bitcoin as an example. When the price fell from $100,000 to $90,000, some traders began to build positions in batches. They gradually bought in the $90,000 area, and when it reached $82,000, the position reached the expected scale, and they were willing to hold it for a long time.

However, the market further dropped to $78,000-79,000, and the short-term floating loss widened. However, from the perspective of risk-return ratio, the investment value of this price level has increased, so some investors choose to free up additional funds to increase their positions rather than passively stop losses, based on the long-term market structure analysis, and do not believe that the market will enter a long-term bear market.

In the end, the average holding cost dropped to US$83,000-84,000. If the market recovers to US$100,000, it will generate a relatively ideal return.

As the market rebounded, the bottom position of $78,000 was partially stopped at $85,000 to ensure that there was still money on hand to deal with a possible second correction. At the same time, most of the core positions were still held as planned.

If the market does not give a second chance to pull back and goes up directly, then all profits will be taken in the range of $87,000-93,000, waiting for the next ideal entry price. If the market breaks through $95,000 but does not pull back to $88,000, then adjust the expected entry point to $90,000. When the market falls back to $90,000, buy again in batches and adjust the strategy according to the market trend.