2.10 Bull markets vs Bear markets

In the financial landscape, the terms ‘bull’ and ‘bear’ are often used to identify the market conditions. Whether it is a cryptocurrency, stocks, real estate, or any other trading market, there are two ways to describe it - a bull market and a bear market. Trading markets often experience upward and downward price movements based on the asset’s adoption, popularity, demand, and various other factors. 

The price fluctuations are more rapid in the case of the cryptocurrency market and it is also referred to as a bull market or bear market based on its condition. The direction of the market has a huge impact on your investment portfolio. Keep on reading to understand bull and bear markets. 

This lesson explains bull and bear markets and what you can do in each case.  

Contents 

• What is a bull market?
• What is a bear market?
• Why is a market called ‘bullish’ or ‘bearish’?
• What to do in each case to gain more profits?

What is a bull market?

When the price of an asset is on the rise for a long period of time, the market is known to be ‘bullish’ or called a ‘bull market’. 

In the period of bull run, a majority of investors will be buying. As a result, the demand for a particular asset increases a lot more than supply. When investors are confident or ‘bullish’, they invest more money into the assets with the anticipation of prices increasing further. This could be the start of a bull market. 

As the crypto market is still in its early stages, the price of a coin is influenced substantially by the confidence of investors in that asset. When a large group of people invests, the price of an asset increases which further draws investments from other investors, and the prices continue to increase. 

What is a bear market?

When the price of an asset continues to decrease for a long period, the market is known to be ‘bearish’ or called a ‘bear market’. 

In a bear market, the supply of an asset is larger than the demand. Investors are pessimistic and less confident about buying a particular asset. The bear market is completely opposite to the bull market. The prices continuously fall in this situation and until the market has fallen by more than 20% from the recent high values, it is not considered a bear market. 

It is highly difficult to estimate when a bear market ends and when the bottom price has reached because recovering is a very slow and unpredictable process. Investors who believe that the price will fall are known as ‘bears’ and a majority of them start selling the assets instead of buying. This results in a further downward trend in the market.  

Why is a market called ‘bullish’ or ‘bearish’?

Like a lot of financial terms, the origins of the terms ‘bull market’ and ‘bear market’ are not clear. Most investors believe that they are derived from the way of animal attacks. While fighting, bulls usually thrust their horns upward so when prices are moving in the upward direction, the market is called ‘bull market’. On the other hand, bears swipe downwards with their claws while attacking the opponent, so when prices are following a downward trend, the market is called ‘bear market’. 

What to do in each case to gain more profits?

In the case of a bull market, you can take advantage of the rising prices by buying the assets at the beginning of a bull trend and selling it when the price reaches its peak. As we discussed in the previous lessons, fundamental and technical analyses tools help estimate the price movements approximately. As a result, you can make better decisions on when to buy or sell a particular asset to make more gains. 

On the other hand, selling your holdings in a bear market may result in incurring a loss. One of the strategies to deploy during a bear market is to hold your assets strong. Alternatively, if you have a long-term trading strategy, investing in a bear market can lower your buying price of coins. Various factors like economic growth, investor psychology, news, and events from different parts of the world influence the price movements of trading markets. 

While you are trading volatile assets like digital assets, always keep an eye on the price fluctuations and trends followed by the market to make the most of your investments. In the next lesson, we look at another significant trading strategy: arbitrage trading.