Bear market: Why and when?
A bear market refers to a period when the value of assets consistently declines. The key indicator of a bear market is a drop in prices by more than 20% from the previous peak. However, in common practice, the term is also used in situations where the decline is steady but less dramatic.
Bull market: Opportunity for growth
A bull market is the opposite of a bear market. It denotes a period when the value of assets in the market is rising. To identify a bull market, two indicators are often used: a price increase of over 20% from the previous low and the attainment of a new all-time high.
Differences between Bear and Bull markets
Historical data shows that stock markets have a more frequent tendency to rise, making bull markets more common. Bear markets, however, can induce panic among investors, leading them to impulsively sell their positions.
How to invest in different market periods
Before deciding to invest, it's important to consider your individual circumstances. Always keep your investment goals, current and future financial situation, and the duration you intend to hold investments in mind.
During bull markets, most investors rely on historical data and fundamental analysis. During bear markets, caution is important because markets can be more volatile.
There are several trading and investment strategies that you can apply depending on the market situation:
- Momentum strategy: This strategy seeks to capitalize on current trends, both bullish and bearish, by applying momentum indicators (It takes the latest closing price and compares it to the closing price from a user-defined period in the past. The result can help us identify the strength of the current trend). It identifies a slowing trend and its potential reversal.
- Trend-following strategies: Advocates of technical analysis often apply trend-focused strategies. They study price movements using charts, looking for specific patterns and formations that suggest the future direction of the trend. After identifying indicators of future market developments, they select the appropriate trading position.
- Breakout strategies: Some strategies focus on identifying moments when the market changes its current trend. They analyze market sentiment, support and resistance levels, and watch for instances when prices breach the trend line, often signaling a trend reversal.
- Position reduction strategy: If you already hold certain assets, such as stocks, during the formation of a bear trend, you may consider selling some of your positions. Proper timing of the sale can allow you to reinvest the proceeds into a larger volume of the same asset in the future.
Recognizing market trends
To identify a bear market, you can look for signs such as a loss of investor confidence, rising interest rates, or geopolitical events. A bull market, on the other hand, can be recognized by a sustained rise in prices, historical data, and performance analysis.
Understanding current market trends can sometimes be challenging, as is devising various strategies and analyzing future developments. If you are part of the crypto world through your own mining machine, you can easily avoid these problems. This means that whether we are in a bear or bull trend, your machine keeps mining. You don't need to have any strategies prepared, and your only concern is waiting for the right time to swap your reward.