If you have been trading cryptocurrencies, then you must have come across the terms – bull and bear market. These terms have significant impacts on the crypto markets. They are not just used in the crypto market but also in traditional markets. Investors use these terms to seize whatever opportunity comes their way. However, how do you understand what these terms entail? How do you distinguish what type of market you’re in? This article seeks to clarify and enlighten you on what these terms mean.
What Is The Bull Market?
The bull market means an uptrend in the financial market. It is a condition in which prices rise or are expected to rise. Most times, the term “bull market” often refers to the “stock market”. However, it applies to any traded assets or securities such as bonds, currencies, cryptocurrencies, real estate, commodities, and more today. Since security prices tend to rise and fall during trading, the term “bull market” often refers to periods when security prices rise. This usually lasts for months or years.
Bull markets are difficult to predict as a result of changes in market trends. The psychological effects and speculations often play a significant role in the market. However, no specific metric determine
the inception of this market. The most common identification metric is when there is a situation in which the stock prices rise by 20% after two declines of 20% each. Since it is so difficult to predict, analysts often identify this after it has happened.
Despite this, investors remain optimistic and confident during this period as they expect it to last for a long time.
Characteristics Of Bull Market
The bull market occurs when a strong economy exists. Most times, it is a result of a strong Gross Domestic Products (GDP) and a decline in unemployment rates. This coincides with corporate profits which give investors confidence. During this period, demand for stocks increases as a general increase in IPO activity reflects in the market.
How To Take Advantage Of A Bull Market
Investors that benefit from the bull market take advantage of buying their shares early and then selling when the price is at its peak. Although determining prices at its bottom and peak stage can be hard, you can still minimize your loss. Here, we will elucidate some strategies that investors utilize during the bull market.
- Buy And Hold
Buy and Hold is one of the strategies in taking advantage of the bull market. Here, investors buy cryptos at a low price to sell at an increased price. However, this strategy involves a high level of confidence and optimism. Cause why will you buy a coin and expect that it will rise. Nonetheless, this level of optimism is one of the ways of fuelling the bull market.
- Full Swing Trading
One of the ways by which you can capitalize on the bull market. Here, you use various strategies to milk out the maximum gains you can get in the market. However, to get the maximum gain, you have to be very active on the platform.
- Increased Buy And Hold
This is another variation of the buy-and-hold strategy. Here, the investors add more to their holdings on the ground as the price increases.
What Is A Bear Market?
A bear market is a condition in which price continues to decline in the financial market. Here, price declines by 20% or more as a result of negative factors such as recession, economic downturn, high rate of unemployment, low disposable income, drop in business profits, governmental policies, and more. Depending on its causative factor, the bear market can exist for weeks, months, or years. Regardless of this, there are ways by which investors can make money out of bear markets. Strategies such as short selling, put options, inverse ETF, are some instances whereby investors can make their money.
Phases Of Bear Markets
These four phases highlight a typical bear market.
- The first stage features high investor sentiment and high prices where investors drop out of the market to take profits.
- At this stage, prices begin to decline sharply. Trading activities reduce, corporate profits fall, economic indicators go below average, and investors pull out as a result of panic.
- At this stage, speculators enter the market to raise some prices and increase the trading volume.
- At this final stage, prices continue to drop but at a slower rate. Here, positive changes occur in the trading movement thereby, attracting new investors again.
Bull vs Bear Market
As mentioned earlier, there are many ways by which you can make money even in a bear market. You should know that different strategies work for the various trading movements. However, you have to understand that cryptocurrency is always a risk. Never invest more than you can afford to lose. Do your research to minimize your loss. Advance your knowledge and trading skills. Read blogs, watch videos, and keep practicing.