Bull or Bear Market?
Jul 28, 2021
Market trends can be defined as the general direction that an asset or market is moving in. Markets regularly change direction, so market trends are closely monitored by most technical analysts to determine the best time to enter a given market.
What is a Bull Market?
A bull market, sometimes referred to as a ‘bull run’, is a trend in which a specific market
rises aggressively over a period of time. Here’s what you need to know about a bull market:
- The term “bull market” is used across a wide variety of financial markets including: cryptocurrencies, stocks, bonds, commodities, and real estate.
- A bull market is also often used to refer to a specific asset such as Bitcoin, Ethereum or XRP.
- When a market is bullish, investors often experience FOMO (fear of missing out) and tend to make irrational decisions, investing in a rising asset for little reason besides its rising price, rather than its underlying value
- The US Securities and Exchange Commission (SEC) defines a bull market as a time where there is a rise of more than 20% in a broad market index for at least a two-month period.
What is a bear market?
A bear market is the opposite of a bull market. The term bear market refers to a strong downward market trend with prices falling significantly over a relatively short period of time. A bear market is important to understand as:
- The term “bear market” is widely used across a variety of markets.
- A bear market is often longer in a cryptocurrency market, as these are smaller and more volatile than other markets such as the stock market.
- A bear market often creates a negative market sentiment as traders lose confidence in said market.
- The US SEC defines a bear market as a time where there is a drop of at least 20% in a broad index over a two-month period.
Market conditions are important indicators that investors often refer to for help making certain decisions. There are two types of market conditions: trending and ranging.
Trending Market Conditions
A market is classified as ‘trending’ when the price is clearly moving in one specific direction. If the price is clearly moving in an upward direction, then the market is said to be in an uptrend. If the price is clearly moving in a downward direction, then the market is said to be in a downtrend.
Traders tend to use these trends to trade the direction of the market. By determining the trend early, traders are able to enter the market as a market trend is changing, allowing them to generate a larger return. An uptrend can be identified as a series of higher highs and higher lows, while a downtrend can be identified as a series of lower highs and lower lows.
Ranging Market Conditions
The second type of market condition is a ranging market. A ranging market condition is sometimes referred to as a ‘sideways’ market. In a ranging market, there is no clear uptrend or downtrend. In ranging market conditions, prices tend to move within an upper boundary/resistance level and a lower boundary/support level.
Trading Practices During a Bull Market
The trading practices during a bull market are generally quite simple: The most common thing that investors tend to do is to buy the dips.
This strategy is good for those who are buying, holding, and dollar-cost averaging. Buying the dips is generally a good strategy during a bull market. It is, however, important to note that a bull market will not last forever, and it is always advisable to sell when they reach their peak. The markets can and will change- especially the crypto market, which is known for its extreme volatility.
Trading Practices During a Bear Market
A bear market arguably presents the most opportunity to investors. This is where most people feel scared or nervous. When the market is seen to be bleeding, it's often the best time to buy.
Buying in a bear market, however, also presents a great chance for loss because prices are continuously losing value. Investors could also benefit from taking out a short position in a bear market, in an attempt to profit from the falling prices. Investors may benefit from taking a short position in a bear market and profiting from falling prices.
It's important to always remember that crypto trading involves risks. It is best to trade responsibly and manage your risk properly. Only risk as much as you are willing to lose.
Start your cryptocurrency journey with MEX Digital. Remember, proper diligence and sound judgement should be used in evaluating the risks associated with these activities.
Trading cryptocurrency carries significant risk and losses can exceed deposits. Refer to our Terms and Conditions and disclosure material.