Strategies for Earning Profits in Sideways Crypto Markets

Darwinbit
8 min readSep 18, 2023

When it comes to the cryptocurrency market, bulls and bears often take the spotlight with dramatic highs and lows. However, there is another type of market that’s often overlooked, but still equally important — the sideways market. A sideways market is characterised by relatively flat movement as prices move within a relatively tight range. It is neither significantly ascending (bullish) nor descending (bearish), resulting in lower trading volumes.

That being said, there are still ways for cryptocurrency investors to profit from sideways markets. Knowing how to identify key indicators of a sideways market is an essential skill for any investor. Various strategies can be employed to seize these opportunities, each with its own risk and reward profile.

In the subsequent sections, we will delve deeper into the basics of sideways markets, and smart trading strategies you can use, while dissecting their pros and cons. Our goal is to equip you with the knowledge needed to transform perceived market uncertainty into profitable opportunities. Let’s dive in!

What are Sideways Markets

A sideways market, also known as a range-bound or consolidation market, is a market condition where the price of an asset moves within a relatively narrow horizontal range over a period of time. In other words, there is no clear trend in either direction, with the price bouncing between support and resistance levels.

Factors and Real-World Examples of Sideways Markets

The occurrence of sideways markets can be attributed to several factors. The first example is the case of post-rally or post-crash consolidation of cryptocurrency prices. This happens after a significant price rally or a sharp price decline, where cryptocurrencies often enter a consolidation phase of relatively narrow price movement. During this phase, traders typically reassess the market’s fundamentals as sentiment and prices stabilise. For example, Bitcoin experienced a significant bull run in late 2017 and a subsequent bear market in 2018. As a result, it entered a prolonged sideways market phase from mid-2019 to early 2020. During this period, the price remained range-bound between $9,000 and $12,000 during this period.

Another common reason for sideways markets is market sentiment and uncertainty. This can be attributed to a lack of significant news or events that drive cryptocurrency prices in a particular direction. As such, traders may adopt a wait-and-see approach, leading to a sideways market as there is no directional bias. A key example of this scenario was evident in the May 2020 Post-Bitcoin Halving. Investors harboured uncertainty about Bitcoin’s impact on the market prior to the halving. Following that, Bitcoin entered a consolidation phase with relatively low volatility as traders assessed the effects of the reduced block rewards.

How to Identify a Sideways Market

Compared to bullish or bearish markets, sideways markets often require different approaches or trading strategies. Nevertheless, there are still plenty of opportunities for cryptocurrency investors to earn profits. But first, it is crucial to understand the key indicators in identifying a sideways market, before applying the appropriate strategies.

Key Indicators of Sideways Markets

Horizontal Price Range: In a sideways market, prices move within a relatively narrow horizontal range. You can draw support and resistance lines on a price chart, where the upper boundary represents resistance, while the lower boundary represents support. Should prices hover between these levels, it is a clear indication of a sideways market

Low Volatility: Volatility measures the extent of price fluctuations. Compared to trending markets, sideways markets tend to have lower volatility and price swings, resulting in smaller candles or bars on a price chart.

Moving Averages Flattening: Moving averages, especially shorter-term ones like the 20-period or 50-period moving averages, may flatten out in a sideways market. Moving averages smooth out price data, and when they become relatively flat, it suggests that there is no clear trend.

Decreased Trading Volume: Lower trading volume is often a sign of a sideways market. When fewer traders are participating in the market, it can lead to a lack of momentum, causing prices to remain range-bound.

Stochastic Oscillator or RSI: Momentum oscillators like the Stochastic Oscillator or Relative Strength Index (RSI) can indicate a sideways market when they remain in a range between overbought and oversold levels. In such cases, they may not provide clear buy or sell signals.

Pattern Recognition: Chart patterns associated with sideways markets include rectangles, channels, triangles, and flags. These patterns typically signify consolidation and can help confirm that a market is moving sideways.

Declining Trendlines and Uptrend Lines: In a sideways market, previously established trendlines (both uptrend and downtrend lines) may no longer be relevant as the market lacks a clear trend direction. Instead, you may observe flat or slightly sloping lines.

The lack of clear trends and general uncertainty makes trading in sideways markets seemingly challenging. However, with careful analysis and the right strategies, investors can still profit from these market conditions. In the next sections, we will discuss some trading strategies for maximising profits in sideways markets.

Unravelling Cryptocurrency Investment Strategies

In the dynamic world of cryptocurrency trading, understanding various investment strategies is crucial, especially in a sideways market. In this section, we will delve into two key strategies — Short Straddle and Scalping — and analyse how they work in a sideways market.

Short Straddle: The Anchor Strategy

The Short Straddle strategy is typically employed when the market is sideways, and the investor expects the price to remain close to the current market price in the future. This options strategy involves selling a call and selling a put — both being anchor units. Essentially, it’s a bet that the price will stay stable, a unique anticipation that can be highly profitable in a stagnant or sideways market.

Scalping: A Quick Profit Strategy

Another strategy that thrives during sideways markets is Scalping. Unlike Short Straddle, which is based on stability, Scalping is all about volatility. It involves making numerous trades throughout the day, taking advantage of small price changes to accumulate profits. Traders often use tools like the Stochastics Indicator, which helps understand sideways trends over a span of 14 days and indicates the momentum through two signal lines. This rapid-fire trading strategy can generate substantial profits when executed correctly.

Pros and Cons of Short Straddle and Scalping

Like any investment approach, both Short Straddle and Scalping come with their advantages and drawbacks. The Short Straddle strategy can be highly profitable if the market remains stable as predicted. However, if the market becomes volatile, the potential losses can be significant. On the other hand, while Scalping can provide quick profits in a volatile market, it requires constant attention and can be risky for inexperienced traders. Therefore, investors should conduct thorough research and assess their risk tolerance before employing these tactics.

In the end, the choice of strategy should align with the investor’s financial goals, market knowledge, and risk tolerance. By understanding the mechanics behind each strategy and its potential outcomes, investors can make informed decisions that best serve their interests in a sideways market.

Protective Earn: Maximising Rewards & Balancing Risks

Trading strategies aside, another viable option to profit in a sideways market is Darwinbit’s Protective Earn product. In essence, it is a crypto structured product based on Fixed Coupon Notes, an established options structure suitable for investors with a positive long-term outlook on the linked asset. What makes this innovative product so appealing is the fact that investors can enjoy the flexibility of tailoring their risk-reward combinations based on their strategy. Moreover, it offers the potential for higher returns, while still providing a safety net with downside protection. It thus comes as no surprise that Protective Earn is gaining popularity as a trading tool among investors, especially in a sideways market.

Implementing Protective Earn in a Sideways Market

Now, let’s delve into how the Protective Earn works specifically in a sideways market. In such a market, prices fluctuate within a narrow band, neither showing a strong uptrend nor a downtrend. This lack of volatility can make it challenging for investors seeking significant returns. However, the Protective Earn strategy can provide a buffer against potential losses while still allowing for profit generation. Let’s take a look at how Protective Earn works in a sideways market.

Case Study: Protective Earn

Alice observes that the price of BTC is confined within a rather narrow range and predicts that the sideways market trend will persist. She thus invests in Darwinbit’s Protective Earn product, with BTC as the underlying asset. As part of the product’s flexible terms, she customises her Auto Take Profit Price at 115% of the initial BTC price, and downside Price Protection at 95% of the initial BTC price.

Investment amount: 100,000 USDT

Initial BTC price: 30,000

Auto Take Profit Price: 34,500

USDT Price Protection: 28,500 USDT

USDT Tenor: 7 days

APR: 60%

Without significant news events and ongoing investor uncertainty, there aren’t significant changes in BTC prices. Thus, the price of BTC is confined within the range of Auto Take Profit and Price Protection. At the end of her 7-day tenor, this is how much Alice would earn:

100,000 USDT Invested x (1+7/365 x 60%)=101.15% x 100,000USDT Invested = 101,150 USDT.

In total, Alice earns a profit of 1,150 USDT.

Benefits and Risks of Protective Earn

The main benefit of the Protective Earn is risk management. By purchasing this product, the investor effectively insures their investment against a significant downturn. This strategy also allows for upside potential if the price of the asset increases. Thus, it can generate profits even in a sideways market.

However, like all investment strategies, Protective Earn is not without risks. If the market suddenly becomes volatile or starts trending strongly in one direction, the Protection Price would be triggered if the observation price of the linked asset falls below the initial price. Nevertheless, it is worth noting that losses will be capped. It is thus crucial for investors to carefully evaluate their risk tolerance and market expectations before implementing this strategy.

Whether you’re an experienced investor or a beginner, understanding and applying effective strategies like Protective Earn in a sideways market can significantly enhance your investment outcomes. Always remember — successful navigation of the cryptocurrency terrain begins with foundational knowledge and strategic planning.

Closing Thoughts

In the realm of cryptocurrency trading, sideways markets can initially seem like a barren landscape with little to no activity. However, as we’ve explored throughout this article, these periods of low volatility can become fertile ground for savvy investors who know how to navigate them. By understanding and implementing strategies such as Short Straddle, and Scalping, or products like Protective Earn, investors can maximise profits even when the market seems stagnant.

With Darwinbit’s Protective Earn, you can easily make the most out of your investments in a sideways market. To find out more, contact our team today!

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Darwinbit

Pioneering the Evolution of Digital Assets. Specializes in offering structured products, staking, and fixed income services.