Automated Trading Practices During Bear Markets

Disclaimer

The examples presented in this article are only to be regarded as a technical demonstration when used with the trading system. Accordingly, these examples should not in any way be construed as a recommendation for any type of trading strategy and they do not constitute any form of advice as to the advisability of investing by the use of any trading strategy. Any Investor who uses a trading strategy must build a trading strategy on the basis of independent testing and according to their specific requirements and needs.

Bear markets often challenge every assumption a trader had who experienced only Bullish markets. Many younger or new traders can’t remember the last major downturn. Terms like quantitative easing or tapering, trade wars or actual shooting wars  and inflation may not have been in the headlines for most of their trading lifespan.  Crypto traders over the last 10 years could typically be patient during a Bull market but now are wise to spend more effort looking for the right entry and exit instead of possibly hanging on to a coin indefinitely. But professional traders and investors can choose no to be the  desperate type, even during a bear market. They often just look more carefully at opportunities and may implement a wider range of tools to secure profits and limit risk.

The market is in a downturn. Now what?

These days, perhaps more than ever, having a well-formed trading strategy is essential. But even having the best strategy alone might not be enough when the market is rapidly changing and the volatility is high. This is when automation comes in handy. Automation makes sure your trades execute at the right moment whether you are watching the markets or not. Since many of your trades will execute when you aren’t looking you can avoid the pitfalls of emotions affecting your decision-making. Additionally, sending manual orders for a group of assets can take its toll, as markets are responding fast and hard. A trader may not physically be able to execute a wide range of trades on a wide range of assets in time to get all the trades open or close in  a manner they get the best entry or exit price. Automation allows for that opportunity. 

Here are other considerations you might keep in mind when setting your automated trading strategy during bear market conditions:

Diversify Your Holdings

Putting all of your eggs in the same basket is not recommended even during the best of times.  During an earthquake, it can be disastrous. Consider balancing your portfolio with different assets. For instance, one might consider spreading your market positions among different Crypto and Forex pairs, or  consider looking at what commodities might be ripe for the picking. Are there any stocks that seem undervalued or overvalued? Spreading your trading over a few or several assets helps reduce the risk of all or nothing results if the market doesn’t move in the direction expected.

While many traders might  leave the markets and liquidate their holdings this flight will provide many other traders with the opportunity for entry prices they previously felt passed them by.

Consider Testing and even Implementing more Complex Indicators and Strategies

During a Bull Market, sometimes it doesn’t take as much insight to pick a winning investment in the market. The last serious Bull run went on for over 10 years. Bear Markets come out of fear and often are shorter and more volatile. Using more sophisticated indicators could translate into more consistent and favorable results. By complex or sophisticated,  we mean indicators that take into calculation more factors providing a direction and/or entry point. For example, try testing out  the Volume Weighted Average Price (VWAP) over  the Moving Average (MA) or Exponential Moving Average (EMA) since the VWAP  includes the volume and the others do not.

Identifying a bear market using different EMA timeframes comparison
BTC/USD EMA 25 (blue) vs. 100 (green)

 

You can use any indicator available on TradingView to trigger your automated trading on Capitalise.ai. Simply create a TradingView Alert and add a webhook to it.In this example, we created an alert on Etherium (ETH/USDT) to be sent when the On Balance Volume (OBV) goes over the Moving Average Convergence Divergence (MACD).

We’ve created an automated trading strategy on Capitalise.ai and added the relevant message to the TradingView alert webhook. Check out the full guide on How to automate any trading scenario using TradingView alerts and Capitalise.ai

 

Bear market trading strategy: Setting a TradingView alert for when the OBV crosses the MACD
Setting a TradingView alert for when the OBV crosses the MACD
automated trading strategy based on a TradingView alert webhook
Setting an automated trading strategy that will be triggered when the relevant TradingView alert is sent

 

Time Your Trades

Consider using timing conditions in order to protect against sharp movements caused by geopolitical news, announcements and economic reports. If you know that one of the influential world leaders scheduled an announcement at 14:00 EST, you could set your conditions to trigger before 13:45 EST. The option always exists to edit the strategy and adjust the trigger’s timing.

For example:

Bear market automated trading strategy

 

Mind the Time Frame 

As volatility rises, consider working with different time frames, not only for indicators (as in the previous paragraph) but also for bars/candlesticks. Week-based bars/candlesticks probably include less volatility than daily ones while 1-hour bars will contain the 60-1m bars volatility within them. 

Find the time frame you feel comfortable with.  Remember larger time frames represent larger opportunities for larger profits but also show the potential for greater risk. Back testing the same strategy with different timing conditions will help you find your sweet spot of which one/s you might favor.


JPY/USD 1h vs 5m RVI (relative volatility index)

JPY/USD 1h RVI
JPY/USD 1h RVI
JPY/USD 5m RVI
JPY/USD 5m RVI

Consider Protecting Your Profits and Limiting Your Risk

This is probably the most obvious change that traders might examine even in good times but makes even more sense to more traders  in times of uncertainty. If you haven’t done it by now, consider using settings to protect your profits and limit any losses on your exit strategies.  Serious investors whether in real estate, the markets or start ups all have an exit plan on how they will get paid. Those who don’t usually either do not make profits or when they do  give them back through a poor exit strategy or future trades that weren’t as successful. With Capitalise.ai trading automation you can close your positions using the standard take profit, stop loss or trailing stop loss or more advanced options such as our recently introduced trailing take profit

Additionally, a trader may just want to adjust the values of the exit conditions to the level of volatility and the level risk you are willing to handle. The more tools you have, the more sophisticated you can be.Automated trading exit options to guard your positions on a bear market

You can take it to the next level by adding advanced exit conditions based on tech indicators, time frames, and news events. For example:

 

Consider Fine-tuning even a Working Strategy

This is true for everything that may have an effect on your trading strategy, but for our purposes, make sure that your current analysis is not outdated. Test the strategy in a closer time range to the previous day, whether it is a back-test or a simulation. Use Backtesting to analyze your strategy performance risk-free, before putting real money into it.

You don’t have to change anything that is currently running. For example, if a trader decided that they want to analyze the performance of a strategy from the 25th of January . The first hit since then was executed on 27/1, hit number 15. Adjust the hits bar to hit 15 and see the strategy’s visual performance since that day.

 

Plan. Test. Automate.

To sum it all up, bear markets often provide times of high market volatility that intimidate even experienced  traders. Few traders have the time they want to monitor the markets as much as they would like and even fewer have the trading discipline. Planning and automating your strategies is the answer. Using your tools, knowledge, and creativity will certainly teach you some things and maybe also generate profits. The m

 

Automated Trading Made Easy

With Capitalise.ai  you can test and automate a wide range of trading scenarios using a simple & intuitive interface.  Traders need no previous coding or technical knowledge. Back testing strategies or running simulations are done entirely on our trading platform.

For live trades you can copy a strategy you tested with us or enter a new strategy  in everyday English and Capitalise.ai will monitor the markets 24/7 for you. Once your entry conditions are met, your trading orders will be sent automatically to your MT4 account for execution.

We have a wide range of examples you can use as a template in our trading blogs and Learning Center and many of our traders choose to share their strategies and stories on our discord channel.

So, don’t wait to get starting back-testing your strategy. It’s RISK-FREE.

When you feel ready and comfortable you can use Capitalise.ai  to automate your live trades with everyday English driven by computer  precision and speed.

 

 

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