How to invest in bullish and bearish markets?
If you’re investing in crypto markets, you may have come across the terms “bull market” and “bear market”. The terms “bull” and “bear” are benchmarks used in financial markets to assess whether the market is appreciating (i.e., going up) or depreciating (i.e., going down). An appreciating market is a bull market, while a depreciating market is a bear market.
If you are a new investor and just started trading, then it is important to understand the concepts of the bullish and bearish market as a way to gauge market sentiment.
What is a bullish market?
In a bullish market, prices continuously increase and the market conditions are favorable for the investor.
A bull market may last for a few months or even years. As the investment prices rise and are sustained over a period of time, investors’ confidence is boosted and they become more optimistic.
Investors in a bullish market are commonly referred to as bull or bullish investors. In a bullish market, there is less unemployment and the economy is thriving, which propels investors to buy or hold on to assets, thus creating a buyer’s market.
What is a bearish market?
Contrary to a bullish market, a bearish or bear market has a downtrend where the market prices are continuously dropping, which generates a lack of investor confidence.
A bearish market is typically noted by a 20% fall in asset prices over a prolonged period of time, usually more than 2 months. During this period, investors are fearful and apprehensive, as they don’t know whether to hold on to the assets or sell them. These feelings are also known as a “bearish sentiment” and are sometimes referred to as “FUD” (fear, uncertainty, and doubt). With a bearish sentiment, the investor fears that the market prices are going to dip or take a significant downturn in the future.
How to invest in a bullish and bearish market?
The best strategy to maximize profits in a bullish market is to buy crypto assets as early as possible and sell them when the prices reach their peak. Some people prefer to sell the assets just before the prices reach their peak because they fear that the prices may suddenly fall to mark the beginning of a bearish market. On the other hand, while some investors prefer to sell assets when the prices reach their optimum value, there are others who like to ride the trend and hold coins over the long-term.
In a bearish market, there is generally a lot of pessimism, but if you use the right strategies there are ways to earn profits even in downtrends.
One of the strategies often used by crypto traders is “buy the dip”. When there is a significant bearish trend, many buyers buy cryptocurrencies and wait for a favorable time when the crypto prices are high and make huge profits. Another significant strategy is DCA or “dollar-cost averaging”. Here, the investor breaks their funds into smaller trade sizes. Instead of buying all the assets in one go, they make smaller investments over time to average out the cost of purchase.
Another way is to diversify the investments into different cryptocurrencies. Do some research and look into the overall performance of the crypto coins and invest in them dilligently. Investors often sell the borrowed crypto assets at a high price and then buy them back at a low price.
The crypto market is highly volatile. It’s important to keep your emotions under control. It does not matter whether it is a bullish or bearish market - don’t let your fear or greed get in the way of a long-term plan. Study the market. Consult with a financial advisor and, draw out a strategic plan and, an investment portfolio and decide how and where to invest. There are free investment calculators and trading tools which can help you with your investment decisions. Most importantly, keep your head cool no matter what happens and prepare yourself for the future.