Market trends are subject to numerous variables, which makes them difficult to predict. But some patterns do show up over and over again. Traders use these patterns to make predictions and profit, regardless of which way the market is going.
A market that experiences steady growth is known as a bull market. On the other hand, a market that continuously falls is known as a bear market. These are the most basic price movement patterns which can be encountered on any financial market, not just crypto. Therefore, it is important to understand what bull and bear refer to.
Bull and bear essentials
- Bull market signifies continuous upwards trends.
- A bull investor trades with the intention of making a profit in a growing market.
- Bear market describes a long-term downward spiral.
- A bear investor takes advantage of falling prices to make a profit.
Why bull and bear?
When prices go up, people call that rising, growing or even skyrocketing. Alternatively, when prices go down, that could be described as falling, lowering, or collapsing. However, in investment circles, you often find the words bull and bear representing these concepts.
The name bull comes from the manner in which a bull attacks by thrusting its horns upwards. This resembles the way a rising market behaves. On the other hand, bear comes from the way a bear attacks its prey by swiping its paws downwards. This kind of downward movement is something that you can see in a falling market.
Bull market
A market where prices are rising or are expected to rise is known as a bull market. This is usually accompanied by optimism and confidence from investors. It’s easy to see why bull markets are attractive to investors. Buy a couple of coins, give them some time, sell them, and you can make a profit.
Bull investor
A bull investor, or bull, bases their investments on the belief that market prices will rise. Bulls usually invest in a market where prices are falling, but where they expect the trend to reverse. They look for cryptocurrencies where an up-trend in price will make them a profit. They also hunt for dips within a rising trend.
Bull trap
The bull trap is the basic mistake that a trader can make by placing too much faith in the growth of a crypto. Believing that its price will rise or even just due to FOMO, investors seize the opportunity to buy more crypto. However, once all purchases have been completed, the decline in demand causes a drop in price. If the price doesn’t stop declining, investors will be tempted to sell to limit their losses. But this often causes an even steeper downward spiral.
Bear market
A bear market is essentially the opposite of a bull market. It’s the condition of the market in which prices continuously fall. Falling trends cause pessimism among investors. They begin to drop out in an attempt to limit their losses, sending the market into an even steeper drop. The bear market often (but not always) goes hand in hand with a sluggish economy, high unemployment rates and unwelcome changes in taxation. Crypto-specific problems include the state of regulation and taxation, and initial coin offerings (ICO) scams.
Bear investor
A bear investor, or bear, believes that a particular market is going to fall and wishes to make a profit from that. A typical bear strategy is short selling. Simply put, it involves borrowing coins when the price is high and selling them. When the market falls, the same amount of coins is repurchased at a lower price and returned to the original owner, leaving the bear with the difference they’ve made in fiat money.
Bear trap
The bear trap is the false indication that the prices in a market are about to plummet when, in fact, they are not. An investor who expects the prices to fall is tempted to sell their coins to avoid losses. However, in a bear trap, the investor has misinterpreted the signals and the prices remain steady or even continue to grow. Whoever has kept their crypto at this point will have the opportunity to make a profit.
Ride the trends
Now that you know about bull and bear markets, you can put that knowledge to use by making it a part of your crypto trading strategy. This is not just relevant for advanced traders, but buying and holding is also a legitimate strategy for the crypto initiate.