Trading in a Bull vs. Bear Market
As we already know, the cryptocurrency market is highly volatile: the price of those digital assets can quickly rise or fall by double-digit percentages, which is unimaginable in traditional markets.
Moreover, these price fluctuations can occur over a short period, from hours to a couple of days, and most of the time, nobody knows where the market is heading. Therefore, terms like “Bull Market” or “Bear Market” were borrowed from traditional markets. These terms designate the price directions, thus forming a trend. But what do they mean? And what strategies should we adopt depending on the market’s direction?
What is a Bull Market?
On a trading market, bull’s horns symbolize growth: asset prices are growing or waiting to grow. Bull Market is a term used mainly on the equity market, but it can be applied anywhere transactions exist, from bonds to real estate to the crypto market. Markets tend to be pretty volatile, constantly growing or falling. Still, the Bull Market term is mainly used when the market continually goes up over extended periods when many assets appreciate the price. That’s why Bullish or Bearish markets tend to last for months or even years.
Bull Markets are characterized by optimism, traders’ confident attitude, and expectations that good results will continue over a more extended period. However, it’s difficult to predict when the market will change its trend constantly. One of the difficulties is that psychological effects and speculations can sometimes play an important role in financial markets, especially crypto.
In addition, there’s no specific or universal modality to identify any type of market. Even with all of this, maybe the most common definition of a Bull Market is when equity prices grow over 20%, usually after a 20% decline and before another expansion. However, in the cryptocurrency market, we can see general growth way bigger than 20% because it’s way more volatile than the equity market.
What is a Bear Market?
We are dealing with a Bear Market when confronting prolonged downfalls of prices that decrease approximately 20% or more from recent highs (speaking about equities) on the background of pessimism and negative market sentiment. Bear Markets can be cyclical or extended over a more extended period, like a couple of months or even years, and can be accompanied by an economic crisis. Causes for Bear Markets may vary, but generally, they’re caused by a weak economy, speculative bubbles, pandemics, geopolitical concerns, or wars. In these contexts, the unemployment rate can grow, opportunities may suffer a shortage, companies’ profits and the population’s income will also be lower.
How to invest in these market conditions
Both Bull and Bear Markets represent extraordinary opportunities to win money. The key to success is to use strategies and ideas that can generate profit in an enormous variety of conditions. Procedures require learning, discipline, focus, and the capacity to profit from others’ fear and greed. Especially in the crypto market, when downfalls of 20% or even more occur in Bull Markets, it’s essential to carefully choose strategies that we’re going to apply.
In a Bull Market, a trader can purchase assets and wait until their price reaches desired levels. This strategy is known as Buy and Hold, and when it is combined with the acquisition of assets at low prices, it can lead to outstanding returns with relatively low risk. In a Bull Market, the trader can also trade derivative contracts, like futures — a financial agreement that gives a trader exposure to the asset via long positions.
On the other hand, in a Bear Market, things work the opposite: derivative contracts, such as short-selling positions, are used to bet on price retracements. This type of position grows in value as asset prices trend lower. Besides short-selling futures positions, traders can also use put options in a Bear Market.
There are many modalities to profit from both Bull and Bear Markets. However, to be as cautious as possible and closer to success, it’s important to use financial instruments to our advantage for each type of market. Short-selling positions, put options, and margin trading are just some of the tools provided by trading platforms or applications, and we just need to use them at the right time.
Regardless of the market’s conditions, different opportunities are still available for investors. With Your Friendly Crypto Exchange, you can rest assured that your trading will be done safely and seamlessly. Join IXFI and take your trading to another level.
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Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.