Exploring the significance of bull and bear in cryptocurrency markets.
Different traders apply different tactics when trading in bear and bull markets. A trader can take advantage of rising prices early in the trend in a bull market and earn profit. The chances of losing in a bear market are higher and therefore a trader could invest in defensive assets to minimize the implications of a downward trend.
Let’s look at some of the characteristics of a bull and bear market, and what to do in each market situation.
Characteristics of a Bull Market
A bull market is characterized by an upward trend within short sessions. Overall sentiments are optimism and confidence among investors. The majority of investors are bullish regardless of the market they serve. In a bullish market, investors have confidence the price of assets will keep rising.
Increasing buyer action in a bullish market increases favors the prices of the asset. Supply is however weak and the demand is strong. High buyer action suggests investors are willing to buy an asset and have high hopes of earning profit.
Note that bullish sentiments exist regardless of the high unpredictability of asset markets.
Characteristics of a Bear Market
A bull market is characterized by a continuous downward market. Usually, a market cannot be fully bearish (true bear market) until asset prices have dropped by 20%. Such a drop suggests that the market will continuously drop.
Low employment levels and a slowing economy create a high urge to sell asset positions. Resulting in a lack of competition to obtain an asset and subsequently weakening prices. High selling pressure suggests investors are not willing to hold on to their assets, and hopes of gaining profits are diminished.
The overall market sentiment points negative, and most participants remain on the fence, waiting for the market to regain stability.
Bulls and Bear Markets in the Cryptocurrency Markets
Bulls and bears were a fundamental notion originating from traditional stock markets. Unlike the traditional market, the crypto market is young, smaller, and more volatile. This makes any of the two market situations substantial and extended across cryptocurrency markets.
History of the Terms
There are explanations attached to the origin of the bear and bull markets. The first one is simple and suggests the tactics of these animals while attacking. A bull will simply raise its horns and move forward, while a bear will wave its paw and halt to attack. The other explanation is historical and quite fascinating.
In the olden days, middlemen bought bearskins from hunters and sold them at a profit to merchants. The middlemen would always speculate the price of the skins to drop so they could sell them at a higher profit. As a result, the middlemen came to be known as the bears - and since then, the term was adopted to suggest a downtrend in asset markets. Bulls have always been considered the opposite of bears, which got the term adopted to suggest the opposite of a price drop.
What to do in a Bear and Bull Market?
Investors profit in a bull market by buying early into the trend and selling at peak prices. However, it’s impossible to predict when the price of an asset will reach its peak. Losses are usually minor in a bull market and can quickly be recovered.
Traders combine various technical and fundamental indicators to predict the price direction of an asset using historical performance. If you can notice the likelihood of an incoming price reversal in a bull market, minimize the size of your positions or consider moving your investment to other assets such as liquid cash or commodities like oil and Gold.
Commodities are known to withstand harsh economic conditions, and investors have used them for a long time to hedge against inflation. Once the bear market comes, take the investment you put in gold and buy crypto at low prices. A move that will give you the advantage to even double or triple your investment when the next bull market approaches.
High chances of loss characterize bear markets. The prices are in a continuous downtrend, and any slight mistake will crash your investment. Therefore bear investors make profit through short selling. Short selling involves borrowing assets when the prices are low, selling them immediately, and repurchasing them once they are low. This method is risky and should be undertaken cautiously and by an experienced trader.
Bulls Vs. Bear
There is money to be made in both market situations; the strategies you implement across both situations are different. Your risk management strategy, amount of capital, and size of position hugely differ when investing in either a bear or bull market. You must understand the characteristics of each situation to know what trading strategy will work for you.
Also, get to know the risks associated with any investment venture. Cryptocurrency markets have greater risks due to high volatility. Something that makes them highly profitable as well. Undertake research and always take the time to analyze market fundamentals. Visit cryptocurrency blogs, acquaint yourself with what’s going around, the latest trends, and study the performance of markets in different conditions.