How to Navigate the Crypto Bull and Bear Markets
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How to Navigate the Crypto Bull and Bear Markets

While trading in cryptocurrencies, you have probably come across the terms “bull market” and “bear market”. Whether it is a stock exchange, real estate, or cryptocurrencies, bull and bear markets play a crucial role in defining the market trend and investor mindset.

Simply speaking, a bull market describes a rising trend and a bear market describes a declining trend. The market trend is hugely influenced by the investor’s mood and perception, which is a phenomenon known as market sentiment.

Due to market sentiment and a number of other factors, the cryptocurrencies fluctuate between bull and bear markets, both for long-term market movements and short-term market swings.

What is a crypto bull market?

A bull market, often called a “bull run”, is an optimistic market. It is a period when the demand for cryptocurrencies outweighs the supply.

As a result, the prices rise upwards. The market confidence is high and the investors appear optimistic or “bullish”.

The investors are referred to here as “bulls”. They believe that the prices are going to go up in the future, and subsequently invest more. This creates a positive trend in the market and as a result, more investors enter the market.

The bull market may not last forever. In any market, there will be short-term fluctuations and dips and the price trends may go down for some time. It is also subject to unforeseen events, government policies, market sentiments, etc.

For example, the market took a sudden hit with the onset of the COVID-19 pandemic and witnessed a sharp downward trend in prices. This can happen when investors lose confidence and, to avoid losses, they start selling their assets. This may result in a fall in the prices.

To leverage the bull market, it is advisable to trade early. At the beginning of a bullish market, there is a rising trend of prices. It is best for traders, especially novice investors, to take advantage of this upward trend and sell their assets when the prices reach their peak.

If they notice a bearish trend, it is best to sell off the less-proven cryptocurrencies and leave the market.

Bull market characteristics

The crypto bull market will show some combination of the following characteristics:

  • Sustainable price increase over a long time

  • Large trading volumes

  • Increased demand

  • Weak supply

  • Optimistic investors

  • Sudden demand for crypto investment among big business houses, celebrities, etc.

  • Small dips in prices

  • Huge price hikes over good events

  • High liquidity

What is a crypto bear market?

In a bear market, there is more supply than demand.

The investor’s confidence is low, and prices start falling. In this scenario, the investors here are pessimists and called “bears”. They believe that the prices will fall further in the long run and start selling their assets to avoid further losses.

A bear market can be challenging, especially for novice traders. The bear market is unpredictable and slow to rebound. It is also difficult to predict when the downward sloping of the prices will end.

External factors like investor’s sentiment, economy, low trading volumes, excessive risks, and unforeseen events influence the bear market.

A bearish market may be challenging, but there are opportunities where investors can make some profits. A bear market in the long term can reverse itself. So, investors who are looking for long-term profits can wait for price hikes.

Just like the bull market, the bear market experiences temporary price hikes. This is an excellent opportunity for investors to make some short-term profits.

Many experienced traders bet on cryptocurrencies depending on their price declines. This is known as “short selling”.

Another important strategy is known as “ dollar-cost averaging”, where traders invest a smaller amount of assets periodically (weekly or monthly) based on the rise and fall of prices. This helps to distribute risk and avoid big losses over a long time.

In a bearish market, one of the strategies is to buy the assets when the prices are low and wait for some time. Then, investors can sell the assets when they enter into a bull market.

Another strategy is to sell assets when the market indicates a bear trend. Then, the trader can buy back the assets when the prices decline further. This creates an opportunity to earn greater profits in the next bull market.

Bear market characteristics

The crypto bull market will show some combination of the following characteristics:

  • Low demand

  • Increased supply

  • Fall in trading volumes

  • Lack of investor confidence

  • Low liquidity

  • High unemployment rates

Crypto bull versus bear market

The bull market may be favorable, but there are ample opportunities to make profits in a bear market. Investors need to familiarize themselves with the market trends, study the market, and adopt strategies to work in both markets. The key is to implement the right strategy.

Unlike stock exchanges, crypto bull and bear markets operate differently.

They are short-lived and more volatile compared to stock markets. The crypto market trend depends largely on the feedback of crypto investors.

So, a bearish market may recover quickly as it reaches its bottom and enters the bull run. Similarly, a bull market may last only for a few days or a month before it returns to a bearish state. This happens because as the bull market grows, the investors cash out their assets and start selling. This results in a fall in the demand for the assets.

Study the best practices and tips for trading in crypto bear markets in this article.

Factors to consider before investing in bull and bear markets

  • Stay above rumors and market news. FUD (fear, uncertainty, and doubt) makes investors suspicious and harms their sentiment. Traders tend to sell their assets from the fear of losing money in the future. FOMO (fear of missing out) is just the opposite of FUD - investors get carried away with some good news or events and sell their holdings to make huge profits, overlooking the current market trend.

  • Diversify your investments. Expand your portfolio. Instead of investing in one particular asset, it is best to consider different cryptocurrencies. Study the market, plan out strategies, and visualize your entry and exit from the market.

  • It is best to hold assets for the long term. The crypto market is volatile, but it has always been favorable to investors who hold assets for long periods.

  • Leverage the market trends. The crypto market will always fluctuate. A bull market only lasts for a specific period and is followed by a bearish market. Even a bearish market has loops and holes where you can make profits. Investors can make short-term profits through betting, short selling, and staking.

  • Take hold of your emotions. Crypto markets are likely to fluctuate. Do not let your emotions run your trading.. Instead, it is important to adjust your strategies depending on the market. It will also help to diversify your assets.

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