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The Difference Between Bullish and Bear Markets

2021-07-28

It can be vital to understand how bearish and bullish markets are mainly different in your investment portfolio. Once you know the main characteristics of every market, you can create the best strategy for risk management.

Market conditions change because of bearish or bullish trends that strongly influence the emotions of traders. Recently, cryptocurrency has swung from bull and bear markets, and traders have modified and adapted their strategies to pattern the macro trend.

However, that may not all.

Our guide will discuss the significant difference between bearish and bullish markets. It aims to understand all of these trends’ anatomy, including the patterns that we can follow so we can make improvements in our exposure to digital assets and risks.

How Can You Derive the Bull and Bear?

The bulls and the bears are both strong animals that often link to strength and aggressiveness. The terminology relates to the way these animals attack their enemies. Bulls would prefer to hit the enemy using their horns to move higher upwards. Bears tend to swipe their paws downward so they can have their opponent pinned on the ground.

Aside from that, since they have clearly defined styles in attacking, financial analysts and markets have begun to use them about the various macro trends and market cycles. So if you want to understand how these terms got coined by financial analysts, you need to clarify how to interpret the directions of the market.

What is the Meaning of a Bearish and a Bullish Market?

Bearish and bullish markets have remarkable differences. Here, we will explain how bearish and bullish markets work, including their characteristics and others.

An Explanation on Bullish Market Trend

Whenever financial markets experience an upward trend, they call it the bull market. Here the price of forex, commodities, stocks, and cryptocurrencies rise higher. But, of course, you can also reference the bull market to the economy in reality.

For example, whenever the stocks or cryptocurrencies move up, the economy also expands and produces reality. As people go through the general phase of the bull market, people tend to increase their spending. Companies are looking for new investment opportunities or are expanding the services and products that they provide.

Whenever we discuss cryptocurrencies, it involves decentralized platforms that are attractive to a lot of users. Here, it may be longer to process transfers, and transaction fees can be more expensive. Whenever this is happening, there is a lot of activity happening in the crypto space.

In case the market is bullish, investors tend to earn more money in the market of finance. Whenever they have a clear strategy in managing risks, it would be possible for them to register income whenever the market is bullish. However, can registering profits be that easy? The answer to this is no because trading is not easy. There is a tendency for bullish markets to experience corrections as they go to the top. With these corrections, it can help in taking the investors out of the bullish market. Whenever investors sell during a bullish market, they are referred to as “weak hands.” Investors with solid hands are those who increase their positions every time there is a dip.

An Explanation on the Bearish Trend of the Market

Bull markets represent positive trends, while bear market trends show negative trends in financial markets like cryptocurrencies and stocks. 

As we discuss the real economy’s bearish trend, it talks about the situations when employees get laid off, companies wind down, and investment plans are postponed. Likewise, in the cryptocurrency market, we may not see dApps register new users whenever the market’s general interest fades away and the trading volume goes down. 

The prices of assets are driven lower whenever the market becomes bearish. If the market is bearish, there is a growth in volatility, and investors manage their heightened levels of doubt, fear, and uncertainty. Yet, even if the market is bearish, you can still have a chance to earn money.

Right now, some trading platforms provide users with opportunities to have short and long positions opened. Having short positions can assist the traders in earning money whenever the market is in a downward trend.

The Anatomy of Bearish and Bullish Markets

In these two sections, we will be discussing the main characteristics that these macro trends have. Aside from that, we will be describing ways you can spot bearish and bullish candlestick patterns. 

The Characteristics of Bear and Bull Markets

Characterized with the positive trends are the bull markets. Inexperienced investors can earn money if they open the best position in a growing trend. Here, there may be no clear definition of when the stock will get into bullish territory.

Yet, you may always use the market data if you want to understand where the market will be moving. Every time the assets increase by an excess of 20% in a few months or several weeks, we may be witnessing the start of a trend that is highly significant.

You can find the confirmation of the bull trends whenever you check out the major indices. As an example, when you see most of the ERC-20 tokens, BTC (Bitcoin), ETH (Ethereum), and LTC (Litecoin) increase for several months, you are experiencing a bull market. 

The other vital characteristic that bull markets have relates to the confidence of the investors. So whenever you see a crypto Tweet that provides high predictions in pricing, there is an excellent chance that you are in a bull market.

Now, what are the characteristics of a bear market?

Falling prices mainly characterize bear markets. You may expect that digital assets like Bitcoin immediately move down by more than 20% in just hours and not days. Whenever the trend gets to stabilize and goes on for some days, it can be possible that we are in a bearish trend.

Like what we discussed before, investors’ main feelings whenever the market is bearish are fear, uncertainty, and doubt. That is the reason why it has the acronym FUD. When this happens, investors would rather remain on the sidelines instead of actively participating in the crypto market.

Use Candlestick Patterns to Identify Market Trends

Candlestick patterns in a set are what technical analysts often use whenever they need help in opening trades as the bull market becomes a bear market and vice-versa. With Candlesticks, you can get a lot of information regarding the investors’ sentiment that can be essential for any analyst.

When it comes to time-frames in the long term, candlestick patterns can give valuable information if the trend is undergoing changes or if you have reached the bottom or the top. However, these candlestick patterns may be far from being bulletproof. Yet, having this can guide any trader whenever they need to manage their position. 

The following are a few of the well known bullish candlestick patterns:

  • The Inverted Hammer

  • The Hammer

  • Morning Star

  • Bullish Engulfing

Here are the most famous bearish candlestick patterns:

  • Hanging Man

  • Evening Star

  • Three Black Crows

  • Doji Star

Trading Whenever There Are Bearish and Bullish Sentiments

If you want to trade whenever the market is bearish or bullish, you need to follow various indicators. Some of them are the VIX or volatility index, moving averages, and bearish and bullish percentage index.

Use Sentiment Indicators

Bearish and Bullish Percentage Index

The BPI or Bullish Percent Index is the indicator that you can use to have information on the market’s health. It is the breadth indicator that a lot of investors and analysts have used. Here the stock percentage is shown on point, and the figure signals to buy.

BPI measures the total amount of stocks that move lower or higher. Through this, traders will have a better idea of where the sentiment of the market will go.

Index can fluctuate from 0% to 100%. Whenever the indicator exceeds 50%, we may be in a bull market as it moves higher. In case the index is less than 50%, we are in a bear market. Conditions, when overbuying or overselling, are among the indicators that make the market drop below 30% or rise above 70%.

Whenever the market is oversold, you may be at a point when the bulls would eventually appear and change the trend’s direction. Conversely, the signal that it is overbought can show that the bears are taking control of the market. There may also be a pause before the trend would resume.

Moving Averages

Some of the technical indicators that are most utilized when it comes to the trading of digital currencies are Moving Averages (MAs). These are used whenever you want to minimize the noise of sudden price drops or spikes and smooth out the price trends. Unfortunately, when it comes to cryptocurrencies, these immediate price drops and spikes are widespread. In trading any digital assets, the most common moving averages are 200-day, 100-day, and 50-day. In addition, both the bear and bull markets have sold and buying signals that can close or open positions.

Aside from the traditional moving averages, EMAs or Exponential Moving Averages are also present.

Can EMAs be better compared to traditional MAs?

In reality, traditional MAs and EMAs only share different information. The focus of EMAs is on the recent price action instead of the general trend. As a result, EMAs provide increased importance on how the market behaved in the short term instead of using the older price information.

Both of these indicators are what successful cryptocurrency traders in the market use. Aside from that, there may be closed or open positions whenever the 200-day, 100-day, and 50-day MAs cross.

VIX: Volatility Index

Also referred to as VIX, the CBOE Volatility Index measures the expectations in volatility in the following thirty days. Having this tool can be pretty handy if you want to understand the market’s sentiment, including the greed or fear that the investors experience.

Even if the VIX index focuses on the traditional financial market, since the cryptocurrency market is highly correlated with the stock market, it can be possible to draw certain conclusions. According to analysts, it would be great always to consider the various indices. 

As the VIX’s value expands, it can be highly probable for the market to fall. However, the opposite will occur whenever the VIX is moving lower. In this case, the market will be heading higher. Yet, this may only be one indicator, and it would be best to use this along with the other tools for analysis.

Catch the Change of Trends

It may be challenging to discover a point of inflection in the market. It would require traders to use various tools that can provide the same results. However, whenever the market changes from being bullish to bearish, it can often spot the top.

The top is the price level that it gets to once there is an increase in trading volume in a short period. Once you reach the top, the direction changes immediately. Aside from that, if the market attempts to move higher once more, it would get rejected many times.

Whenever there are changes in the market trend, it would be helpful to understand if this is a long-term macro trend or a difference in the short term. Whenever the market moves from being bullish to bearish, position traders can have a temporary position opened. Typically short-term traders sell and buy fluctuations that happen whenever they rade a crypto trading pair. Every single movement in the market is what scalpers may use to earn profits whenever there are fluctuations.

Challenges that you can Anticipate whenever the Markets are Bullish or Bearish

There are challenges that traders need to face and understand whenever the markets are bearish or bullish. As you go through a macro trend, the main challenge that traders avoid is falling into bull or bear traps. They need to remain focused on the bearish or bullish market trend if they want to avoid unwanted results.

The other challenge that the traders are facing whenever the markets are bearish and bullish is their emotions. It would be great for traders to have intuition as one of their characteristics. However, having too much emotion can harm their performance.

Whenever there are bull trends, the price drops will be a lot. That is because so many traders exit from their positions whenever the price decreases. Because of that, it leads to a situation when the investor realizes that the price drop was only for a moment and the bull trend is still intact.

That is also what happens whenever you are in a bear market. Whenever the move goes higher, many traders get into the market because of the price increase. However, they eventually realize that the market is continuously falling.

A Recap on the Bearish and Bullish Market

Bearish and bullish markets are vital parts of any cryptocurrency or financial market. Traders need to understand their features and characteristics if they want to become successful in trading.

Among the recommended ways to improve your success rates is by using a comprehensive set of indicators for trading. Yet, there may be some challenges that traders need to acknowledge. Nevertheless, once you leave your emotions aside and trade with technical and fundamental analysis, it can be among the best ways you can go through any price fluctuation.

The cryptocurrency market may be expected to undergo a lot of bear and bull markets in the future. Since we are now in a bear market, do you think you can get to the top with these new strategies?

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