Whether you are a seasoned investor or have just begun your investment journey, you have most likely come across trading terms such as bullish or bearish markets while watching financial news channels or reading magazines. You may have heard crypto investors [or even regular investors for that matter!] say things like “The market is bullish” or “I am bearish on that asset.” sometimes, you need to master bearish vs. bullish market trends.
But what does it mean to be bullish or bearish?
This blog will explain what a bullish vs. bearish market is and the differences in systematic trading in a bullish vs. bearish market. We will also explore how to trade in different markets and what strategies to follow when investing in a bear market.
Find out 5 things to know before trading here
Overview of Bullish And Bearish Markets
In the trading world, bearish and bull markets reflect the sentiments of a certain cryptocurrency or the market as a whole. Using these terms, investors can easily describe whether the market is heading upward or downwards.
A bull market is defined as a market environment in which the market’s financial status is improving, and the economy is doing well, or when the market index rises by at least 20% from its previous low. During a bull market, crypto prices continuously rise, and investors are encouraged by the crypto market’s strong performance.
During a bull market, everything in the economy is great, such as rising GDP, increased job creation, rising cryptocurrency values, and so on. The bull market typically leads to crypto overvaluation because investors are highly optimistic and expect that crypto prices will continuously rise.
Now, let’s talk about the bear market.
The bear market is the polar opposite of the bull market, and this is usually characterized by a poor economy, fewer jobs, recessions, and plummeting crypto values. Investors are highly gloomy during a bear market, fearing that cryptocurrency prices will continue to fall. Moreover, the bear market makes it difficult for investors to select positive or profitable crypto coins.
Typically, a shift of 20% or more from a recent peak or decline signals the start of an “official” bear or bull market.
Here’s another quick fact about the bull and bear markets.
The market terms “bull” and “bear” are taken from how these animals attack their opponents. A bull raises its horns in the air while the bear swipes its paws downward, and these actions are metaphors for market activity.
If the trends are upward, the market is called a bull market; if the trends are downward, the market is called a bear market.
Let’s look at an example better to understand the difference between bull and bear markets.
The long bear stock market in the United States unfolded between 2007 and 2008 during the financial crisis and lasted around 17 months. During that time, the S&P 500 lost half of its value. Recently, key indices such as the S&P 500 and Dow Jones plummeted significantly into bear market territory around March 11, 2020, due to widespread coronavirus restrictions.
Similarly, the U.S. stock market is currently experiencing the longest bull market in history. It began in March 2009 and will end in 2020. However, several market segments have witnessed 10% or higher declines in 2020.
It’s also worth noting that the longest U.S. bear market lasted 61 months, from March 10, 1937, to April 28, 1942. The most severe bear market, which lasted from September 3, 1929, to July 8, 1932, slashed the market’s value by 86 %!
So, that’s an overview of the bull and bear markets.
Let us now look at why it is essential to understand market conditions.
Find insight about Gold vs. Crypto investment here
Why Is It Necessary To Understand Market Conditions?
As an investor, keeping track of market trends and understanding the movement is important since it will ultimately help you inflate your profit, limit your loss, or modify your positions over time. A better understanding of market sentiments allows you to enter or exit the position. Furthermore, different market sentiments require unique investment approaches.
It also allows you to make informed decisions and buy or sell assets depending on sentiments. Ultimately, traders should integrate technical and fundamental analysis with market sentiments to help establish their market positions and take the necessary actions depending on them, such as entering or exiting positions or buying or selling assets.
Characteristics of Bull & Bear Markets
The following are some bull and bear market characteristics that you should be aware of as an investor.
Supply & Demand
The first unique characteristic of a bull and bear market is supply and demand. There is a strong demand for cryptocurrency during a bull market, but supply is limited. In other words, the number of investors eager to buy cryptocurrency outnumbers the number of investors willing to sell cryptocurrency. As a result, as investors compete to buy available crypto, crypto prices will soar.
On the other hand, there is a very high supply of cryptocurrency during a bear market, but the demand is very low. In other words, the number of investors willing to sell cryptocurrency outnumbers the number of investors eager to buy cryptocurrency. This will eventually lead to a decline in cryptocurrency values.
Investor Psychology
Investor psychology is another aspect that will determine the crypto market trajectory, i.e., whether it will rise or fall. During a bull market, investors are eager to invest in the hopes of making a profit. Investors will opt to withdraw their money from cryptocurrencies during a bear market due to bearish sentiment.
It is not an exaggeration to say that market performance and investor psychology are closely intertwined. This means that if investors believe that market sentiments are unfavorable, they will sell crypto, causing the market to collapse. Similarly, when investors believe that market sentiment is strong, they will invest more, causing the market to soar.
Economic Conditions
Since the majority of crypto coins are the brainchild of multinational corporations or other businesses, any decision or development related to those companies will impact the price of that crypto as well.
For example, several global corporations, like Microsoft, Wikipedia, and AT&T, now accept Bitcoin. So, if these businesses decide to stop taking Bitcoin as payment, there is a high probability that the Bitcoin price will bear the brunt.
Similarly, if more companies announce that they will accept Bitcoin as payment, the price of Bitcoin will undoubtedly rise.
These are the three most important characteristics of a bull and bear market. As an investor, it is recommended that you maintain track of each of these elements so that you can make timely decisions and avoid substantial losses.
Now, the question is what to do during the bear and bull financial markets. Let’s find out in the next segment.
What To Do During Each Market Trends?
During a bull market, it is recommended that investors buy crypto early in the trend, taking advantage of rising prices, then sell them in a phased way as the values rocket up and reach the peak.
Since the loss probability is often zero or very low during a bull market, but the profit possibility is higher, investors can take calculated risks and experiment with their investment strategy.
Similarly, it is best to avoid trading during a bearish market since the risks of making a loss are higher as crypto values continue to fall. However, if you decide to trade during a bear market, be extremely cautious, conduct your research, and choose for short selling or safer investments like investing only in strong currencies.
Also, the best way to survive both markets is to be well-versed in your long-term financial goals. The goals can range from retirement to holidays to owning a house and beyond. Once you’ve defined your financial goal, you’ll be able to make better investment decisions.
You can also design your crypto portfolio based on your goals and timeframe. This also includes the buy and sell values of specific cryptocurrency coins. Moreover, knowing your goals beforehand will empower you to navigate and adjust the portfolio based on the results or as you approach your financial goals.
Here are some tried-and-true strategies for investing in bull and bear markets. Check them out to keep your losses low and your profits high.
Trading Tips For Bull Market
As previously stated, a bullish market has moved 20% or more from a recent peak. You might use the following trading tips during the bull run.
1. One of the most important rules to follow during a bull market is to stick to a solid crypto portfolio.
2. Next, always commit to your financial plan. Bring your allocation back to normal as soon as it goes out of line.
3. Another well-known bullish market tip is to book profits at regular intervals. When the price of the cryptocurrency declines, buy it again.
4. The SIP approach is the ideal one to follow during the bull run. Also, phase out your investment.
5. To hedge your risk during the bull markets, use futures and options trading.
6. You can also use the BUY and HODL strategy during a bull market. Traders enter, maintain their positions throughout the bull run, and sell when prices are at their peak.
7. Another bull market approach you might use is to ride the trend. Using this tested trading strategy, traders choose currencies that are in a strong uptrend and profit from their upward movement.
So these are some of the trading strategies that traders should employ during a bull market. Even if the bull market is safer than the bear market, there is a major risk of losing money or failing to book profits if you do not have a well-chalked-out trading strategy in place.
Also, keep in mind that bullish uptrends might endure only a few weeks or even a few days. As a result, you must have a trading strategy in place to reap the maximum profits.
Now we’ll look at the bearish market.
In comparison to the bull markets, investing in the bear market is a challenging and dangerous path that necessitates a well-thought-out strategy and full attention of the investors.
The following are some bullish market trading strategies that you should follow to minimize risk and maximize profits.
Trading Tips For Bear Market
As previously stated, a bearish market has fallen by 20% or more from its previous low. However, it is difficult to predict how long they will persist and how severe their impact will be. The following are some techniques you might apply to either limit risk or benefit from a bearish market.
1. The first thing you should do during a bear market is assessed your risk tolerance. Be an informed investor who analyzes market mood before making any move.
2. The next tip is to hedge utilizing futures and options and phased out investment practices if the market is falling, short the futures, or buy a put.
3. Always maintain a high level of liquidity. Never pass up an opportunity to increase your investment in a falling market. However, make certain that you invest in the market in a very small amount or a phased-out manner.
4. The fourth and most crucial advice to remember during a bear market is to conduct your own research. Study the past market trends. It will help you understand how the market has reacted or behaved in the past during a similar scenario. This will allow you to make an informed investment decision.
5. The final strategy you can apply during a bear market is to DO NOTHING! Examine the volatility index (VIX) variable, which defines market volatility. If the VIX is higher than 20, stay away from the market.
These are the five most important tips to remember during a bear market. As an investor, you may always feel you have missed upon an opportunity or taken the wrong step. But keep in mind that there will always be more opportunities for you. So, never lose patience during a bear market. Instead, conduct your own research, invest cautiously, and avoid trading activity if the VIX exceeds 20.
However, the bottom line is that there is no way to guarantee returns in the investment market, and all you can do is maintain good investment habits and make sound decisions.
Now, let’s take a quick look at a recurring buy in cryptocurrency.
What Is Recurring Buy?
As the title suggests, recurring purchases allow you to automate the purchase of cryptocurrency. This technique enables investors to choose and buy their preferred cryptocurrency and set the amount and frequency they wish to do so.
This will spare traders the trouble of making manual purchases by allowing them to set up automatic or recurring crypto transactions. Moreover, you may always suspend or cancel the recurring purchase if you wish.
This brings us to the end of this article. We hope that all this information has helped you understand bullish and bearish markets, and you have also learned how to invest in both bull and bear markets and why it is important to understand market sentiments.
Summing Up: Understanding market sentiments–bullish and bearish, is important since it affects your portfolio. As previously stated, conduct your own research, phase out your investment, and seek professional advice during both market trends. In addition, follow the advice mentioned in the blog. To expand your understanding of the cryptocurrency market, read our previous blogs.