Financial terms you need to understand for you to succeed in the markets
The year 2017 saw the crypto market rise by a significant margin. We saw some cryptos such as bitcoin rise from lows of $1000 to highs of $20,000. If you didn’t get in at that time you are probably feeling left out. But you shouldn’t be, the market still has massive potential for growth. Besides, with platforms such as Coinseed, you can invest small amounts, from as low as $5, and create a crypto portfolio. All you have to do is buy into the upcoming Coinseed ICO, and get started. But you don’t have to focus so much on investing tiny amounts through Coinseed. You should think about increasing the amount you invest through active trading. That’s the secret to creating wealth through crypto. To help you do that successfully, here are a few terms you need to understand.
You have probably heard of this term in the financial markets whether it’s with regards to stocks, forex or cryptocurrencies. So what exactly does the term bulls mean? Well, just to be clear it has nothing to do with cows. It is a term used to describe buyers in financial markets. These are people who hold the view that the market will go higher in the future. For instance, if you find the market going up, as the cryptocurrency market did in 2017, it means that there is a high number of bulls in the market. Another term that usually goes together with bulls is the term “long.” If you come across the term long in the financial markets, don’t start looking for a tape measure or some other measuring instrument, it simply means the act of buying. Let’s use an example to give you a clear idea of this whole issue of bulls and longs. Assuming the price of bitcoin is $10,000 and based on upcoming news, you are projecting that it will rise to $12,000, you would be described as being bullish on bitcoin. If then you decide to buy it based on those sentiments, you would be said to be going long on bitcoin. It’s a pretty simple concept. Bull and long are just fancy financial terms for buying an asset in anticipation of making a profit once that asset grows in value.
This term stands for the exact opposite of bulls. Bears have a pessimistic view of the market. They are driven by the belief that the market will drop. If you are new to finance the whole idea of bears can be a little bit confusing, but hang on, you will understand it in a little bit. Here is how it works. Assuming bitcoin is trading at $12,000, and a bear believes that it is too expensive and will fall, they can borrow some money from the market and sell it. They will then profit as the market drops. For instance, if bitcoin in this context drops from $12,000 to $10,000, the bear gets to make a profit of $2000. This act of borrowing to sell an asset in anticipation that it will fall in price is called shorting. The beauty of being able to short the market is that you can make money when the market is going up and down. That’s because when the market is going up, you simply go long, and when it’s too overpriced and going down, you go short.
That’s probably why finance experts are so rich. They get to make money whether the market is going up or down. But this should not excite you to jump into financial markets without educating yourself on how they operate. There is a good reason why a majority of the people getting into financial markets lose money. These markets can be very deceptive, with all kinds of false buy and sell signals. These false signals constitute what’s called bull traps and bear traps. Let’s dwell on them in more detail then you will understand what they are all about.
A bull trap occurs when the market creates the impression that it is going up, only for it to reverse. Such a scenario is called a bull trap because it tricks buyers into going long in the belief that an uptrend has started. Once they have placed their orders, the market then reverses and drops hard, hitting them hard. Bull traps usually happen when large sellers are looking for a good entry point to place their sell orders. They usually do that so as to not to alert the market that they are looking to sell. The concept works by large sellers placing small buy orders that create the impression of increasing demand. As the rest of the buyers enter the market, the large sellers place their large order, selling into the liquidity of the buyers.
A bear trap is the exact opposite of a bull trap. In a bear trap, large buyers place small sell orders in the market, creating the impression that the market is going down. Once enough sellers buy into this deception, the big players then place a large buy order pushing the price up, and knocking out sellers from the market.
In both the bull trap and the bear trap, the idea is to create liquidity for buying or selling opportunities by large market players. That’s why as a small investor, you should always wait for a trend to be confirmed before you make a move. For instance, if you are looking to buy, wait for the trend to completely form before you jump in. The same goes for an investor trying to short the market. Wait for trend confirmation before you make your move.
Basically, in the financial markets, be it the stock markets, forex or the crypto market ensure that you are fully informed with what is going on in the market at all times. This is the only way you can stay ahead and avoid getting caught up in bull traps or bear traps. Without information, you might lose lots of money in this market.