One of the most common misconceptions regarding the crypto space is that it is impossible to make a profit when the crypto prices are dropping. This is a false assumption, especially when it comes to Bitcoin (BTC). While the process is not known to the majority of traders, it is still very much possible for those who know what they are doing, and a significant amount can be earned in a relatively short period of time.
The fact that a lot of investors and traders are unaware of this may not be that surprising when we consider that a lot of early investors cashed out when Bitcoin reached its peak. Very few people dared to bet against the market and go short, instead opting to keep their coins, which led to their funds diminishing. However, as mentioned, a handful of professional traders managed to make millions even during the 2018 crypto winter.
Profitable Cryptocurrency Trading Tips
The secret does not lie in some unknown tool or in cheating the system. Everyone can do it with a proper strategy, which starts with choosing the right exchange for the job. Most professional exchanges tend to choose to trade on BitMEX in order to make money in the bear market, as it offers some advanced features, such as leverage and short positions.
However, due to the fact that this is an advanced exchange and a bit of a complicated trading method, newcomers should keep in mind that it is better to take a step back and do their research if they are unsure about anything. You will not make a profit by risking and making moves you are not completely sure about. Another thing to note is that US-based traders cannot access BitMEX, which is why they might want to consider using a privacy tool like VPN to change their location. With that out of the way, let's see how you can make money during the crypto price drop.
As mentioned, we will use BitMEX for the purposes of this guide, as it is easy to sign up on the exchange, and because it offers a lot of advanced features that are useful for professional traders. Those willing to try it out may want to sign up now, before continuing with the guide, as it will make it easier to follow it.
After getting to the BitMEX registration page, simply fill out the registration form, which includes your email, password, country of residence, and your first and last name. After that, accept the Terms of Service, and hit the “Register” button. Go to your email inbox and open the confirmation email. In it, you will find a blue button that says “Verify my email.” Click it, and you're back to BitMEX. That's it for this part, and you will now be able to proceed to the next step.
How To Start Trading
When it comes to crypto trading, having the right strategy is all that matters. Experienced traders have spent months, or even years researching, piling up knowledge, sharing experience, and perfecting their strategies. A lot of it ended up being the trial-and-error type of thing, which makes the strategies that much more precious to them.
For new investors, it is recommended that they start a trading journal where they will enter details of their trades, their feelings about the trade (whether they are confident or not), and similar details. Keeping accurate and detailed logs will allow you to learn things about yourself as a trader, but also show you where you made a mistake if things go wrong. Putting the details on the paper will not cost you anything, but the process can be tremendously valuable for your growth as a crypto trader.
Now, with that out of the way, let's talk about trading, and the steps you need to take.
Step 1: Depositing Funds Into Your Account
The first step is pretty much obvious, and you need to have funds in your BitMEX account. If you already use BitMEX, and you have Bitcoin there already — great! Proceed to the next step.
If not, go to the Account tab on top of the site, and click deposit in the menu that appeared on the left side of the screen. This will lead to your exchange wallet address being generated.
Now that you have done this, it is time to deposit your Bitcoin. If you have your BTC in a phone wallet or in an exchange that has a phone app, you can simply scan the QR code that appeared on your screen. If not, use the BitMEX wallet address to send your funds. Make sure that the address is correct since your funds will be lost if you send them to the wrong one.
You might also want to check the address by sending a small amount of BTC and see what will happen. If the funds arrive at the exchange wallet properly, you will know that you are ready to send the larger amount safely.
Step 2: Calculations
So far, you should have your account on BitMEX created and funds deposited. Now, you are finally ready to learn how to create a short position and bet on the price drop of BTC.
For those who might not know this, creating a short position, also known simply as a short, means that you are selling first and buying later. This comes from the expectation that the price will continue to drop, meaning that the price is higher now than the price in the future.
However, before the trade itself, you should make use of a tool that allows you to easily calculate relevant info, and determine whether or not you are making a good trading decision.
You can do your calculations by clicking on the trading tab (found on the left of the Account tab), and then find the “Place Order” section on the left. After that, find the Calculator icon, and click on it. The calculator should appear on your screen at this point, and you should click on the switch button to select the short position.
Below, there are four fields — Quantity, Entry Price, Exit Price, and Leverage. Quantity represents the amount of Bitcoin contracts you will purchase in USD. Entry Price is the price of Bitcoin at the moment when you enter the market. Exit price represents the price that Bitcoin will have when you exit the market. Finally, Leverage multiplies the effectiveness of your BTC contracts.
Currently, BitMEX allows up to 100x leverage for BTC, which means that adding leverage to a short can allow you to earn as much as 100x than the profit percentage. However, while the increase in gains is great, it comes with an increase in risk as well, and the margin for error between the entry price you selected and the liquidation price becomes smaller.
HowTo Calculate Liquidation Price
If you are confused by the liquidation price, don't be — it is simply a set value that Bitcoin's price must not cross. If it happens, your funds will be gone. You can calculate the liquidation price by clicking on the “Liquidation Price” tab in your calculator. After that, locate the Side row, and toggle the button so that you select the short position. As for the Margin row, you can leave the button at Isolated. Next, locate the Quantity/Entry Price/Leverage fields, and enter the same numbers from the Profit/Loss tab. On the right, you will see the Liquidation Price calculated.
And remember, the increase of your Leverage will reduce the gap between the Entry Price and Liquidation Price, which will leave less room for error and, as mentioned previously, you will lose your funds the moment that BTC price hits the Liquidation Price. If you are new to this type of trading, it is better to stick with small leverage of only 2x, or even 1x, until you get used to the process. You can grow leverage over time and play it safe. This is a good way to develop a sense for the market, gather experience, and learn how short positions work.
Step 3: The First Trade
At this point, your calculations should be complete, and you should be ready for purchasing the contracts. Start by going to the left side of your screen, and click on the “Market” tab, located right below the “Place Order” tab. This will allow you to enter the market at the current price. After that, enter the number of contracts you want to purchase.
Below, you will see the total cost in XBT (1 XBT = 1 BTC), which marks the trading fee. You will also see the deposited funds in the “Available Balance” row, and above it, there is “Order Value” row, which changes in accordance with the number of contracts you entered earlier.
The next thing you need to do is select the leverage. The leverage you choose might change the contracts' cost, so keep that in mind. Change it and see how it impacts the cost, while the Order Value remains unchanged. An additional thing to note is that the price at which contracts are exchanged is not the same as the BTC index price. In addition, the digits displaying the contracts price are larger, and they change color depending on whether you are selling or buying.
After you check all of this, you will be ready to finally go short, and after clicking the Sell button, a confirmation will pop up, allowing you to confirm that all of the entered info is correct. This stage still allows you to change the leverage, in case you were having second thoughts about it. If everything is accurate, hit the Sell button on the bottom-right once more, and you will get a confirmation pop up in the bottom-right of the screen. After the order has been filled, you will see a green box that will notify you of it.
Closing A Short Position
Now that you know how to enter a short, it is time to learn how to close it. Since entering meant selling contracts to the market, you will have to buy them in order to exit your position. Traders typically exit the market for two reasons — either to avoid liquidation, or they made enough profit.
There are two ways to exit, both of which are quite easy on BitMEX. If you take a look at the bottom-right corner of the screen, you will notice Close Position, with the red Market button below it. If you click this button, you will exit the market at the current market price, and the confirmation box will pop up, allowing you to close the position. After that, the Order Submission box will appear in the bottom-right corner, as well as the Order Filled boxes.
The second method is to enter the number in the text field on the left of the red Market button in the same area. This indicates the price at which you want to exit the market at. Simply enter the price of your desire, and click the gray Close button, located between the input field and the red Market button. A similar confirmation box will appear, this time giving you the option to Limit Close Position. Confirm it by clicking on the blue Limit Close Position button, and you will set the price at which you will exit the market.
And That's It!
At this point, you should know all there is in order to enter short positions on BitMEX successfully. The process is not overly complex, and you will find it quite easy with practice. All you need to do now is keep track of the market, research on your own, find valid predictions, and plan your strategy accordingly.
As mentioned, it is useful to lead a trading journal and write down your thoughts and feelings regarding different transactions. Translating those feelings into words might give you insight into what your instincts are telling you, and you will be able to grow as a trader based on the insight you get that way. Combine it with the market reports and price movements, and you can become a professional trader in no time.
If you want to bet on the price growth, you can open long positions by going through the pretty much same process, with the biggest difference being that you have to choose the Buy Market when you click on the Market tab. Remember to keep track of your positions on your dashboard, and try to play it safe whenever possible. Other than that, it all comes down to your research and trading strategy.