How to trade during a bull or bear market?
- 5 minute read
During a bull or bear market, there are many opportunities as an investor to profit financially. As it is unclear in which market we are at the moment, we outline for you examples of how to be profitable in both the bull and the bear markets.
Bull market
- ‘Buy the dip' in combination with dollar cost averaging (DCA) is a simple strategy that has proven to be very effective in the crypto market. When you buy the dip you benefit from low prices and good entry moments, since even during a bull run you have bearish moments. Because of being in a bull run, there is a big chance that fallen prices will recover. That is why drops are favourable entry moments. Beware! If you go all-in on the dip, you take a big risk. Professional investors advise you to invest your money proportionally (DCA), so that your investment does not become worth less in one go.
- The ‘buy and hold strategy’ has also worked very well in the crypto market so far. If you have bought and held Bitcoin or Ethereum in recent years, your wealth is guaranteed to increase. Whether this will continue in the future is impossible to say, but up to now it has.
Don't buy the pump and sell the dip. Maybe consider the reverse.
— CZ 🔶 Binance (@cz_binance) November 26, 2020
Everyone feels like they missed the bus, just HODL. pic.twitter.com/sxAKBfSqSG
— Documenting Bitcoin 📄 (@DocumentingBTC) April 3, 2021
Bear market
- In the bear market, too, you have the 'buy the dip' strategy in combination with DCA. Just be prepared, in the crypto world a dip in the bear market can be extreme - think of drops between 85% and 99% - and can last a long time.
- Avoid catching a so-called 'falling knife'. Investors often think they see a good entry moment when the price dips. Regularly, the price recovers after a dip but sometimes it sinks further without mercy. This was also the case with Bitcoin at the beginning of 2018. The price dipped from $20,000 to $17,000. Investors thought $17,000 was a good buy. However, the price fell to $10,000, which later proved to be the start of an unprecedented bear market.
- Trade with stablecoins. Stablecoins like Tether are cryptocurrencies that correspond to the value of the dollar. When a bear market occurs, it could be wise to convert a part of your crypto portfolio to stablecoins. This will prevent your capital from depreciating. When the market picks up again, you will have money ready to invest at a bargain price.
When you hear preposterous comments like "the market is never going down big again" you know investors are conditioned to buy the dip, and when a bear market eventually arrives MANY will blow up and suffer heavy losses because they will be buying the dip that keeps on dipping.
— Mark Minervini (@markminervini) September 15, 2021
What marks the end of a bull market or bear market?
It is difficult to determine the end of a bull market and a bear market. This is because during a bull market there are many fluctuations, falls and corrections in price, and vice versa for the bear market. Identifying signals of a trend reversal on a chart in a short time frame can be very difficult.
'When in doubt, zoom out'. Select a longer time frame at Tradingview. Via Tradingview you can easily view charts per cryptocurrency and determine what kind of market we are in.
History has shown that a bull and bear market never last forever. At some point, the confidence shown by the bulls or the pessimism shown by the bears will start to increase. Several factors can contribute to this. Just look at the COVID-19 pandemic. Nobody expected it and all financial markets ended up in a (temporary) bear market.
Closing thoughts
The bull and bear markets in the crypto market move in relatively short cycles. As a result, you can make a lot of money if you use the appropriate strategy at the right times. In particular, buying during a dip and using the dollar-cost-average strategy avoids risk and you would be profitable to date if you did not deviate from the tactic.
But at the moment, it is difficult to define what kind of market we are in. The crypto market was booming until May, when it experienced a major correction. Are we over the blow and will we continue to soar to great heights? Or is this a falling knife and will we fall back into an unprecedented bear market? Only time will tell.
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