Original article: Jordi Alexander, founder of Selini Capital
Compiled by: Yuliya, PANews
After experiencing the largest single-day market cap growth in history, the market saw the second-largest single-day decline the very next day. This extreme volatility has left market participants caught off guard.
Many traders have suffered significant losses in this environment. On one hand, they panic-sold at the market bottom due to fear or technical breakdown signals; on the other hand, they blindly chased the rally at the top driven by short-term rebounds or positive news, only to be hit by a second market collapse.
In the bullish frenzy of November 2024, the overall market expanded rapidly, and most investors were inclined to go long, making it relatively easy to profit. However, in the current extremely volatile market, relying on luck alone is not enough for long-term gains. Only highly specialized traders with professional trading strategies can survive and potentially profit in such extreme conditions, often employing the following strategies.
Cash is king, prioritize liquidity
In a highly volatile market, holding sufficient cash is crucial, even if it means sacrificing some expected returns (EV) to ensure liquidity.
For example, the investment management firm Jane Street has long invested in deep out-of-the-money put options, and despite facing continuous short-term losses, their ample liquidity allows them to acquire undervalued assets at low prices during market crashes. This strategy is particularly important in the Altcoin market, where leverage is more prevalent, and liquidity mismatches are more severe than in traditional financial markets.
Some top traders tend to gradually reduce their positions in the "shoulder" area during sharp market rallies, rather than waiting for the extreme peak of the "head" region. While this may miss out on some upside potential in the short term, the long-term advantage of this strategy lies in the ability to redeploy capital at more attractive price levels.
Focus on price, not time
Top traders are typically not constrained by trading time frames, but rather define their trading ranges based on price. For example, during the previous bull market, the trader High Stakes Capital shared a screenshot of their eight-figure profits on the FTX account, with positions opened just two months prior. This demonstrates that in extreme market conditions, time is not a critical variable, and the key lies in clearly defining buy and sell price ranges.
The trading logic should be based on the following two points:
Determine a clear value-supported buy-in price to avoid decision-making being influenced by short-term volatility.
Set a clear risk-reward ratio and target exit price, and execute the trade decisively when the market reaches the target.
Then, maintain patience, whether it takes hours or weeks, and execute the trade as soon as the price reaches the target. At the same time, continuously adjust your "ideal entry price" and "ideal exit price" based on market changes.
If one is too constrained by the time dimension, such as "only doing intraday trading" or "only doing multi-week positions," the trading performance will be limited. The core mindset of top traders is: "Buy low, sell high," and the holding period is determined by market fluctuations.
Execute calmly, strictly follow the trading plan
In an extreme market environment, the position size must match one's financial strength. If the position is too large and the market continues to decline, the trader may become psychologically unbalanced due to unrealized losses, causing them to deviate from the original plan.
The current market still has a lot of positive factors and ample liquidity, so it is unlikely to enter a prolonged multi-year bear market. This macro assessment has led some investors to maintain confidence even as the market declines. At the same time, they do not expect a full-blown "Altcoin season," so they gradually realize profits during market rallies and patiently wait for the next more attractive entry opportunity.
In their market decision-making, some investors adopt the psychological strategy of asking themselves: Is the current price likely to fall back again? If the answer is yes, it means the current level is not the best entry point, and it is appropriate to wait patiently for a better risk-reward window to appear.
Market practice: trading strategies in a volatile market
Taking Bitcoin as an example, when the price fell from $100,000 to $90,000, some traders started to build positions in batches. They gradually bought in the $90,000 area, and by the time the price reached $82,000, their position size had reached the expected level, and they were willing to hold for a relatively long time.
However, the market further declined to $78,000-$79,000, and their short-term unrealized losses expanded. But from a risk-reward perspective, the investment value at this price level actually increased, so some investors chose to allocate additional capital for further buying, rather than passively stop-loss, as long as their long-term market structure analysis did not indicate a prolonged bear market.
Ultimately, the average cost of the positions was reduced to $83,000-$84,000, and if the market recovers to $100,000, it will form a relatively ideal return.
As the market rebounds, the $78,000 bottom position is partially taken profit at $85,000 to ensure there is still capital to deal with a potential second pullback. Meanwhile, the majority of the core positions are still held as planned.
If the market does not provide a second pullback opportunity and instead rises directly, the entire position will be taken profit in the $87,000-$93,000 range, waiting for the next ideal entry point. If the market breaks through $95,000 but does not pull back to $88,000, the expected entry point will be adjusted to $90,000. When the market falls back to $90,000, they will buy in batches again and adjust the strategy based on the market trend.
