Bull and Bear Markets - What to Know
Markets are unpredictable: they can shoot up and go down quickly. This constant change is referred to as bull and bear markets. To put it simply, markets that are experiencing steady and sustained growth are bull markets. Markets experiencing a noticeable decline are known as bear markets.
The bull and bear have become quite symbolic in the investing world as they make it easier to note which markets are up and down. A common misconception about the bull and bear market terms is that they are only used when referring to the stock market. Bull and bear are used to note the conditions of almost every market, such as real estate and cryptocurrency.
What is a bull market?
The market for cryptocurrency is majorly influenced by the general population. A bull market is when the price trends are going upward. In other words, a bull market occurs when investment prices keep rising for a sustained period. The majority is investing and the demand is higher than the supply. Confidence is soaring.
When a market price is seen quickly rising, one can conclude that this indicates the investors are optimistic or "bullish". If the price continues to go up, it may be the start of a bull market. When investors are bullish about a market, that is, they are confident that the price trend will continue to go up, they are known as "bulls". This causes more investors to come in, and the prices continue to rise.
When it comes to cryptocurrency, the market is heavily influenced by the public. Public confidence in a cryptocurrency or a market is seen as an asset. Some investors use a strategy to observe optimism known as "market sentiment".
The thing about a bull market is that no matter what, the prices don't continue to go up forever. At some point, investors start to lose confidence and the prices start to go down. Some dips and fluctuations don't automatically mean that the market is not bull anymore. In fact, it is normal to have fluctuations even during a bullish period.
What marks the bull market ending and the beginning of a bear one is when there is a sharp decline in the price. This is when investors are not confident in the market anymore and the prices continue to fall.
What is a bear market?
Contrary to a bull market, a bear market occurs when investor confidence is slow, and supply outweighs demand causing the prices to go on a downward trend. Investors who are pessimistic about the price trend and believe that the prices will continue falling during this period are known as "bears". It can be challenging to invest during this time because no one can tell when the bear trend will end.
This is due to reasons including economic growth, unforeseen circumstances, investor psychology, and more. A market is only considered to be bear when prices fall more than 20% for a sustained period. Bear markets can last very long, even years. During this time, investors usually look to sell for cash and security. This creates a seller market which contributes to bear market trends.
Bull and bear - where should you invest?
As discussed above, there are several differences between bull and bear markets. Therefore, the investment strategies for both are also wildly different from one another.
Having a higher allocation of stocks during the bull market period is considered to be better because there is a potential for high returns. One can also capitalize easily in the bull market period by buying the rising stocks or, in this case, cryptocurrency, early and then selling before they hit their peak. This allows investors to gain more capital at a faster pace.
Alternatively, investing in a bear market requires investors to have more of a longer-term investment strategy. Like the bull market, the bear market also doesn't last forever. So, when one invests in a bear market, they can typically profit a lot and get high returns on their investments when the cycle goes back to normal.
Moreover, investors should also be on the lookout for temporary or short spikes if they are looking to sell early.
As an investor, one can use different bull and bear investment strategies like short selling, where investors bet on where the asset price will start to fall. In the crypto world, many investors use the dollar-cost averaging strategy. This is where they continue to invest a certain amount of money every week or month, no matter the price trend.
In either case, bull and bear markets will continue to happen. How one invests during this period largely depends on the investor. If someone is looking for short-term profits, the bear market is the way to go and vice versa.
Author: Tripti Sarda
Spirituality, cats, and a love for pop culture. You will always find me talking about the mountains.