Market trends are among the most fundamental aspects of financial markets. We can define a market trend as the overall direction that an asset or a market is going. As such, market trends are closely watched by both technical analysts and fundamental analysts.
Bull markets tend to be relatively straightforward to trade, as they can allow for some of the easiest trading and investment strategies. Even inexperienced traders may do well in really favorable bull market conditions. With that said, it’s also crucial to understand how markets move in cycles.
So, what should you know about bull markets? We’ll start off with learning what is a bull market and what triggers a bull market crypto. Following that would be how traders (like yourself) can take advantage of bull markets. We’ll explain it all in this article.
What is a Bull Market?
A bull market, or a bull run, occurs when all the various crypto prices increase. Though an individual crypto might have a slight dip, the overall market trends upward. Multiple coins need to be increasing in price for a crypto bull run to occur, and this price increase has to be sustained for at least a day or so.
Keep in mind that there's no set level of price increase when a bull market occurs. In stock investments, a bull market is often defined as beginning when the S&P index is 20 percent higher than its last bottom. However, crypto markets are smaller and tend to fluctuate a little more frequently, so bull markets aren't as rigidly defined. In crypto, bull runs can last as little as two days, or they can continue for months on end.
Applied to crypto, this definition is often expanded to refer to trading strategies themselves. A bull trader buys crypto expecting prices to increase. You might also hear people describe a trader as having a "bull attitude," which means the individual believes the market will keep rising.
What Triggers a Bull Market Crypto?
The rising prices of a bull market usually aren't caused by random coincidences. Instead, they occur when a series of events combine to make crypto investors feel more positive. When crypto traders are feeling optimistic about the economy, they’re far more likely to trade crypto enthusiastically. This causes prices to gradually increase over time, and the increasing prices cause a positive feedback loop in which investor confidence continues to rise.
There are a variety of factors that go into this increased investor optimism, including:
- Relaxed regulations that allow more crypto trading
- Increased levels of employment that leave people with more money to invest
- Government policies that lead to companies growing financially
- Strong GDP that boosts overall confidence
- Increased wages and decreased inflation that allow more crypto investment
- High amounts of spending that strengthen the economy
Characteristics of a Bull Market
How can you identify a bull market? A crypto bull market is defined by a few specific traits:
- Increased demand: There’ll be more people looking to buy crypto than people looking to sell.
- Higher volume of trades: When you look at trading metrics, you'll notice there are more buys and sells happening.
- Unexplained growth: The increased confidence can spill over into markets that wouldn't otherwise be rising. Crypto may experience a significant price increase, even if there hasn't been any noticeable reason for one.
- Bookended by downturns: Right before and after the bull market, there will be a sharp downturn in crypto assets.
- Unrealistic valuations: Not all characteristics of a bull market are positive. Unfortunately, they can lead to bubbles, in which crypto values inexplicably elevate.
- Impressive returns: On average, investor returns during a bull market are around 112 percent. These high returns make it easy for people to profit from crypto.
Bull vs. Bear Markets
Any time you're considering a bull market, it's important to think about its counterpart. The opposite of a bull market is a bear market, which occurs when the public is pessimistic, investors are concerned and prices fall drastically. The crypto market typically cycles between bull and bear. If it’s not in one, it will often be in the other. Bear markets usually don't last as long as bull markets, but they can have very low prices.
Should you buy crypto in a bull market – or a bear market? Of course, the ideal option is to buy a lot of crypto during a bear period and sell it at the end of a bull run. However, timing the market can be tricky. Not only is it hard to predict when prices will change, but prices tend to increase overall. Therefore, a crypto's highest price during a bull market might still be lower than its lowest price during a later bear market.
Consequently, most investors don't recommend trying to buy only during a bear market. Instead, it’s better to identify the type of market you’re in and shift your buying strategy accordingly. Strategies like buying and holding crypto can work well during a bull run, and techniques like call options can also provide big returns in a bull market when utilized correctly. During a bear market, it’s best to focus on diversifying your portfolio and looking for high-value crypto selling at a very low price.
How Traders can take Advantage of Bull Markets
The main idea behind trading bull markets is relatively simple. Prices are going up, so going long and buying dips is generally a reasonable strategy. This is why the buy and hold strategy and dollar-cost averaging are generally well-suited for long-term bull markets.
There’s a saying that goes like this: “The trend is your friend, until it’s not.” This just means that it makes sense to trade with the direction of the market trend. At the same time, no trend will last forever, and the same strategy may not perform well in other parts of a market cycle. The only certainty is that the markets can and will change. As we’ve seen with the COVID-19 outbreak, multi-year bull markets can be wiped out in a matter of weeks.
Naturally, most investors will be bullish in a bull market. This makes sense since prices are going up, so the overall sentiment should also be bullish. However, even during a bull market, some investors will be bearish. If their trading strategy accommodates it, they may even be successful with short-term bearish trades, such as shorting.
As such, some traders will try to short the recent highs in a bull market. However, these are advanced strategies and are generally more suitable for professional traders. As a less experienced trader, it’s usually more sensible to trade according to the trend. Many investors get trapped trying to short bull markets. After all, stepping in front of a raging bull or a locomotive can be a dangerous undertaking.
Closing Thoughts
We’ve discussed what is a bull market and what triggers a bull market crypto, along with how traders may approach trading in bull market conditions. Typically, the most straightforward trading strategy in any market trend is to follow the direction of the overall trend.
As such, bull markets may present good trading opportunities, even for beginners or first-time investors. However, it’s always essential to manage risk properly and keep learning to avoid mistakes as much as possible.
