How to Trade Crypto Market Corrections Like a Pro
Crypto market corrections are an inevitable part of trading, but can be a source of potential profit with the right knowledge and strategies. Savvy traders with a cool head and a solid plan see such short-term price corrections as an opportunity to buy assets at a discount. In this article, we’ll share tips on how you can trade during crypto market corrections and come out ahead.
What Is a Crypto Market Correction?
Unlike a market crash (sharp plunge in price exceeding 20% in a very short period) or a bear market (sustained price decline over a long-term period), a crypto market correction is typically defined as a short-term decline of 10% or more in the overall market capitalization of cryptocurrencies. They may last anywhere from a few days to a few weeks, where prices pull back after a rapid period of growth. Corrections are a recurring phenomenon that presents opportunities for traders who are prepared.
Trading Tips to Use During a Crypto Market Correction
1. Buy the Dip
Corrections create an opportunity to buy your favorite cryptocurrencies at a short-term price discount. Take the chance to increase your holdings in projects with strong long-term potential. Look for projects with solid fundamentals that exhibit signs of overselling like unusually high trading volume or a sharp drop below key support levels. Flipster allows traders to monitor price action and identify potential buying points with 24-hour high/low volume data to spot signs of overselling, such as a sudden surge in volume accompanied by a sharp price drop.
2. Set Stop-Loss Orders
During a crypto market correction, stop-loss orders are a must-set when entering a position, especially with leveraged derivatives like perpetual futures. Corrections are notorious for sudden and unpredictable price swings, so a stop-loss prevents you from getting caught in a freefall. To find the right number for your stop-loss, first decide what percentage of your trading capital you're comfortable risking on any single trade. Once you've got that percentage, you can calculate your stop-loss based on the size of your position.
Setting stop-loss orders is a breeze on Flipster. You can easily place them when you open a position, and they can be adjusted at any time. For a step-by-step guide, check our FAQ page on stop-loss orders.
3. Take Advantage of Volatility
Corrections create opportunities for traders to profit from both rising and falling prices. With perpetual futures on Flipster, you can capitalize on this volatility by making a prediction on whether an asset is going up or down. If you're bullish on a particular cryptocurrency, even during a correction, open a long position to profit from potential price increases. However, if you believe the correction will continue, you can open a short position.
Flipster makes it easy for traders to enter a short position from scratch or even reverse their current long position into a short with the Instant Flip feature.
4. Conduct Technical Analysis
During a crypto market correction, technical analysis can help you find the right opportunity to buy. By using indicators like moving averages, RSI, or MACD, you can identify potential entry points when a cryptocurrency is oversold and exit points when it shows signs of a bounce. Chart patterns, such as head and shoulders or double bottoms, can also provide clues about potential trend reversals, putting you in a position to ride the wave when it happens.
Flipster’s advanced charting tools and technical indicators can be a great way to identify potential entry and exit points for perpetual futures or spot trades. With indicators and the ability to analyze chart patterns like header and shoulders or double bottoms, you can potentially spot trend reversals and make informed predictions with your perpetual future trades.
5. Watch Market Sentiment
Keep a close eye on market sentiment and sentiment indicators like the Fear and Greed Index during a correction. Are people panicking, or is there a sense of optimism? Use social media, news outlets, and on-chain metrics to get a feel for the overall mood. By doing so, you can anticipate how the market might move and adjust your strategies accordingly.
6. Stay Disciplined
Corrections can trigger emotional responses that lead to poor trading decisions. More experienced traders counter this by relying on predefined strategies and risk management techniques that they set for themselves even before a correction. For example, setting a maximum drawdown percentage to automatically exit a trade or a strict position sizing strategy to avoid overexposure to a single asset. By doing so, you set clear rules to buy or sell and avoid emotional trading.
Corrections are a natural part of the crypto market. While we can't predict when a correction will hit, we can control how we respond. Instead of riding them out passively, we can leverage smart strategies and disciplined risk management to potentially turn these dips into advantages and come out ahead.
How to Trade Cryptocurrencies on Flipster
Sign up for an account on the Flipster website or by downloading the Flipster app (Android or Apple).
Click the [Trade] tab.
Search for your preferred cryptocurrency and click on it.
Select the leverage (up to 100x).
Select either a Trigger Order or Market Order.
Enter the amount of coin you want to trade or choose a percentage of your available funds.
Once you have confirmed the details, click the [Long] or [Short] button to open a position.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.