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The Bull and The Bear Markets: How To Take Advantage Of Them?
The first things I have encountered when I entered crypto trading were the bear and bull markets. For sure, you also have thought why are they called the bear and bull market. With this latest bear market, I have decided to dig information about these two markets to clearly understand when the bull will run, and when the bear will roar.
In regard to their names, I found some explanations of why they are named after these two animals - bull and bear. Well, both are great representations of strength and power. But why bear for the downtrend and bull for the uptrend? One answer is, bears swipe down with their paws and bulls thrust upwards with their horns. This has also something to do with the popular bloodsport that pitted bulls against bears. And another explanation is during the olden times when middlemen for the merchants that sold bearskin speculate on the future prices of the bearskins. They were hoping for the price to drop then they became known as “bears.” The term then stuck in the market for a downturn, something these “bears” hoped for. So next time you are asked these questions, the explanations are simple as mentioned above.
These two markets give tremendous effects on investors and traders and to fully understand the behavior of the market, they are always after these two markets. For us new traders, we are only up to what's on-trend and just go along with the flow. And we can't really tell when the bear or bull will take over the market. That's the reason why knowledge in technical analysis and reading the indicators are important, to have at least a hint on what possible episodes will happen next.
So to give you some insights regarding these markets, I created this article and this is based on my experiences, understanding, and research. Let's see their differences and how to take advantage of the bull and bear market. This is not only applicable in the crypto market but also the stock market.
THE BULL MARKET
The bull market is when the trend goes upward over a relatively short period. Basically, it is when you see the prices start to surge up and investors are optimistic as they expect the prices to rise. That is because the demand for an asset or securities surpasses its usual law of demand and supply, which pushes the prices to rise.
In staying in this crypto industry for quite a long time, I have noticed that the bull market takes over when the price of an asset increases over 20% or at least 80% of all cryptocurrency prices rise over an extended period of time and market indexes rise at least 15%. The public, investors, and social media positive sentiment also drive the prices to rise.
Some traders employ several strategies, such as increased buy and hold and retracement, to take advantage of the bull market. This is also the time that the whales come out and sell their assets to get a quick buck and leave the market once they got what they want. The supply will become weak while the demand will become strong. And some traders and investors are eager to buy more assets, but many are willing to sell.
The bull market usually runs for a short period and of course, once the bull gets tired from running, the bear can easily swipe it down to take over the market and expect the market to turn bloody red. Usually, a bear market is what follows after a bull market. Once the index strikes its high and then decreases by 20%, the bear market has started.
The bear market is the contrary of the bull market. It is when you see a substantial market downtrend over a relatively short period and the prices start to drop drastically. It occurs when prices in the market fall by more than 20%, and it can continue until the next drop of another 20% or more. The bear market is often accompanied by negative investor sentiment and usually lasts for weeks, or even up to months or years.
The bear episodes will continue until a 20% gain occurs. And to end the bear market, the index has to hit it's low and followed by a 20% increase, starting the next bull market.
And just like me, for sure you guys also want to know how to spot the coming of the bear market. These indicators might help us.
The rallies can not hold and the technical charts are showing a series of lower lows, and the indexes are below their moving averages. Thistells that the market is weak and is susceptible to further injury.
The trend is moving downward quickly while the rallies are slow. The volume increases while decreases during rallies. This might last 5-10 days while the rally might last 1-3 days.
There is no bounce-back after a more than 3% correction. The double-correction with stair-step of lower lows on a chart is also a warning sign.
The market should retrace at least half of its losses, but if not, then that's a warning sign that the bear market is coming.
We have witnessed how the market falls last February and for sure you know how it feels to be swiped down by the bear. You also have seen how your portfolio declined by more than 20% for a couple of days. Some traders are capitulating during the bear market and selling their assets in a panic with the fear that their portfolio won't come back to even.
But some believers prefer to HODL their assets and instead of selling, they do strategies such as buying on weakness, buying in the dip, or dollar-cost averaging (DCA) that works in the bull market. Others who want to escape from a bloody plunge will move their assets into fiat currencies that will hold their ground against the market crash and will put them in a good position for the next bear market.
The month of February shows an example of how the bull and the bear market take place. Let's take the most volatile among the cryptocurencies - Bitcoin.
February 9 when Bitcoin jumps over $48,000 and just after 2 days it blew past $48,000 for the second time in that week. By February 16, it then again jump above $50,000 bringing its year-to-date gain to 74%. The rally continued until February 21 when it reached its ATH above $58,000 level.
But it then followed by an 8% fall to below $48,000 on February 22 and continued its losses tumbling by as much as 18% to $45,000 on the next day. That was the start of the bear market. And February 26 BTC tumbled at 11% losses as lows as $44,200. As we move into March, Bitcoin continues to hit its ground and will continue to experience volatility and fluctuations.
Not only Bitcoin suffered from a tremendous downfall but the majority of the market. And some are still struggling to recover even until now. So some traders implement strategies to minimize the losses during the market crash.
We can't really tell when the bull will thrust its horn up or when the bear will swipe down its paws, but one thing is for sure, we can take advantage of their battle.
To take advantage of the bull market, investors are buying early and sell their assets when the prices reach their peak. It is hard though to identify when it will reach the peak or the bottom, so there are always losses but usually minimal and temporary. And of course, whales benefit the most during this short period of bullish.
At the end of the bull market, many cryptocurrencies are available at a lower price which gives the bearish to double or even triple their investments, and that is how to take advantage of the bear market. Some investors will make the short-selling strategy which involves selling borrowed shares, as they expect that the market will continue to go downtrend and so they can repurchase them. But this is extremely risky, so if you are a new investor, you should not apply this strategy especially if you don't know much about the technicalities of the market.
There is also another way to take advantage of both the bull and the bear market, this strategy is called retracement. Not all the time the trend will only ascend during the bull market, and not all the time the trend will only descend during the bear market, so traders are using retracement to gain more profits in these two markets.
A retracement is a brief period in which the trend reversed. Those are the periods when small dips occurred even the trend continues to go upward or the small spikes during the downtrend.
Traders took advantage of this by selling during the small spikes and buying during the small dips. But to execute this successfully, you should always monitor the chart and know how to read the indicators.
So there are possible ways to earn money during these markets, so do not pull out too much on the bear or the bull. And no one rings a bell when the bear market starts, or when the bull market ends. So you always have to look at the clues and indicators to determine when to get out or back in. And one thing is for sure, bears are inevitable as bulls, and they arrive with vengeance.
Cryptocurrencies are still in the infancy stage so they can be extremely volatile, and crypto investment is always associated with risks. You have to know when to invest and that is at the absolute low, and sell at the very peak, and you have to predict when your investment hits the bottom and buy it back. Just continue the process until you master the strategies of trading.
Understanding bull and bear markets are very important especially if you are new in the trading industry. Learning these terms and strategies can help you figure out how much risk you are willing to take when you do invest. But first, you must know what type of market you are in so that you can identify which trading strategy to carry out. Implementing DYOR will help you minimize all possible risks because, in this crypto arena, knowledge is truly power.
Disclaimer: I am not a financial advisor
and this the article is for educational
purposes only. Always make your own due
diligence when investing in
Any investment involves high risks,
so do not invest more than what
you can afford to lose.