A market is said to be bearish when the value of the asset depreciates, and the investor loses a fraction or all of their investment. As simple as it seems, it has driven many away from cryptocurrency and scared others who are looking to start trading.
Whether you are investing in stocks, forex, real estate, cryptocurrency, or any other assets, these two words, bearish and bullish, are commonly used in describing the market. Any market experiencing a rapid increment is called a bull market.
In simple terms, while a bull market is a rising market, a bearish market is a falling market. This rise or fall is with respect to the volume available, market cap, value, and price. Volatility occurs within days or even moments, and that’s why it is important to understand these concepts.
In this article, we’ll take a look at the cryptocurrency market, the factors affecting the market and how the bullish and bearish market work.
Like other asset class, cryptocurrency also increases and decrease in value, volume, and market price. The price variation is a result of an increase or decrease in demand and supply for the asset, among other factors you can find here. These two market conditions are described as bull and bear market.
But why BULL and BEAR, not CHICKEN and TURTLE?
Believe it! This is not me overthinking stuff, because there sure is a reason behind this.
The short story behind the two terms, as believed by most people is the immediate physical features of the animals they represent — the bull and the bear. Each animal is characterized by a feature that is used in attacking prey or protecting itself.
Bulls are known to plunge their horns upward, and that, as you might guess, signifies the rise of a market. Bears, on the other hand, swipe downwards with their claws. What more evidence is needed to prove that bearish markets also fall downwardly?
A market is described as bullish when the prices of commodities are increasing due to investors’ actions. During this period, demands surpass supply because investors are buying making the market promising and, in turn, increasing the price.
Whenever you notice an increase in the price of a digital asset, just know that investors are seeing a prospect of an increase in the price of such a commodity. You are simply experiencing a bullish market. Investors who believe in “market sentiment” and buy further are known as Bulls.
Market sentiment is the measure of public confidence in a market which substantially influences the price of a given cryptocurrency and the response of investors to the market (to buy or not to).
However, not a single market is stable and free of inflation and fluctuation. Dips, volatility, and fluctuations happen during the bearish market as well. Any rumour or bad news like unfavourable regulation might decrease investors’ confidence in the market. This signals the end of the bull market.
In the same vein, you can say this is the start of the bearish market for such an asset. In a bear market, supply is more than demand, investors’ confidence declines, and the price decreases. For beginners or inexperienced traders, it is not recommended to trade in a bear market.
Investors who believe that the price of a currency will keep falling are known as Bears. A bear market is usually caused by economic downfall, world events or news, and investor psychology, among other reasons. It is quite hard to predict when a bearish market is going to end.
Implications of the Bullish Market
Each of the market types has its implication for retail traders and investors on a short- and long-term basis. For example, if an investor purchases an asset in a bull market with the intention of selling before it falls (short-term goal).
Should the market fall suddenly and enter the bearish region, the investor will end up losing if he sells during this period; as the buying price is more than the selling price. However, the investor might decide to keep the asset till it buys again and make multiple profits (long-term).
Implications of the Bearish Market
The bearish market, like the bullish, also has an underlying implication for investors and retail traders on a short- and long-term basis. For people trading in the short term, they buy at a significantly low price when compared to the original price of the commodity.
However, since they are trying to sell it while the bear market is still on, they end up selling at a price lower than the buying price — a loss. The potential opportunity for investors and retail traders in a bearish market is to buy at a lower price and keep it for a long till the price rises.
To mitigate the risk in short-term trading, you can employ strategies like short selling, using dollar-cost averaging and selling at temporary price spikes.
These three trading strategies, among several others, have proven effective to distributes your risk and allow you trade at any point in the market. My next article will explore the details of trading strategies regarding mitigating risks.
Kindly share your thoughts about the market trend — bearish and bullish. What is the current market position of your favourite asset?
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