The market can be either a rising “bullish” or a falling “bearish”. These names appeared in the XVIII century, long before the advent of the crypto market and, as we see, remain relevant to this day.
Bull market is a period in the market when assets grow in their price. It is considered favorable for investors because they can buy stocks, securities, currency at a lower price and then sell more expensive. The optimistic mood of traders and investors attracts newcomers who also want to make money on price increases. The market is dominated by the number of buyers, respectively, the demand for assets is high, which leads to their growth.
A bear market is the opposite of a bull market. At this stage of market development, the value of assets falls by 20% or more. (If you notice that a drop in value is 10%, then it is a correction. The correction isn’t an indicator of the beginning of a bear market). During this period, sellers who open positions to lower the price dominate. Investors are starting to withdraw money from exchanges, exchanging assets for fixed income securities. With an increase in capital outflow from exchanges, the value of assets also decreases.
A bear market is usually associated with a weak economy. Investors are usually afraid to invest their money anywhere. In a bull market, on the contrary, companies invest their assets, which brings profit and allows them to invest even more.
To remember who are bulls and who are bears, there is a simple association. Bulls seem to "throw up" prices with their horns. So, the market is growing. In turn, heavy bears seem to press prices to the ground with their weight, which entails a market drop.
No market behavior can be eternal. No matter how much prices rise, a bear market will replace a bull market. To minimize risks, traders have deduced patterns and phases of bull and bear markets.
Bull Market Phases:
1. Pessimism or Accumulation
This stage is at the end of the bear market. A big collapse in the price has already occurred, the pessimistic moods of the participants remain. So, the price fluctuates at low rates. Experienced investors are gradually starting to buy assets, anticipating the beginning of a bear market.
2. Skepticism or An Intermediate stage
The cost moves slightly horizontally (the price can either fall or rise slightly). The pessimistic mood of investors disappears, but the market movement is still perceived with caution and distrust.
3. Optimism or a Big Movement
The market gains stable growth, good news appears and volatility decreases. Investors and traders are bolder in acquiring assets, which reinforces market growth. This stage is considered the most suitable for making money, because the trajectory of price movement is linear.
4. Euphoria or Excess
The market is rapidly growing upwards. A lot of deals are being opened to increase, market volatility is enlarged. There is more and more news like "The price peak isn’t coming soon” or "The market growth will last for a long time”. At this stage, those who want to make quick money, the so-called “crowd”, join the trade. At the same time, transactions are made only for the purchase of assets. Knowledgeable traders begin to prepare for a bear market and gradually sell assets.
Bear Market Phases:
1. Optimism or Accumulation
Assets are being bought up, but not for long. Gradually, interest in them decreases, and profits are fixed. Economic growth is reaching its maximum. Due to the lack of price increases, many people think that it is a market correction, so asset purchases continue. This situation is fueled by the media, which say that the market will soon go up again.
In order not to lose money, it is worth watching the price movement very carefully. If the peak values are at least slightly lower than the previous ones, it means that the main growth of assets has ended and it will soon occur either a horizontal price movement or its fall.
2. A fall or a big movement
The price goes down and overcomes the greatest distance (as in a bullish trend). Sellers dominate the market. Everyone is selling off their assets and converting them into stable securities. There is more and more news about low company profits and economic problems.
At this stage, the bears come into play. As a rule, they open short sales deals, which is why the price of assets periodically may rise. The aim of it is to sell the assets at a high price and buy it back lower.
3. Pessimism
At this stage, the cost reaches its minimum. Investors who have suffered huge losses on long positions are selling their assets in desperation. Traders who have traded shorts do not see the point of opening new positions, so the volume of short trades decreases. The situation is aggravated by gloomy news and forecasts of analysts. However, enterprising investors begin to accumulate assets for a small cost and prepare for a bullish trend.
At this stage, the market turns from bearish to bullish, and the cycle repeats.
Conclusion
It is quite possible to predict the market movement, because the market has a lot of people whose psychology does not change. Analyzing the behavior of the crowd, you can understand the market trends. There are already several patterns that will allow even a beginner to feel the upcoming market movements.
