In this article, you will learn what is the meaning of bearish market. When it comes to making big money in trading, the trend is your friend. A trader can spot trend extensions with the help of bullish or bearish continuation patterns, which occur in a variety of easily identifiable shapes, some of the most popular of which are known as bull and bear flags.
What is the Meaning of Bearish Market?
Bears usually swing their paws downward when attacking another animal. Hence, bearish as a term is used for a downsloping curve.
A bearish market is categorized with declining prices of cryptocurrencies and buyer pessimism. When the price of a cryptocurrency reaches its peak (new highs), investors are inclined to sell cryptocurrencies they own to make a profit. Once everyone starts selling their cry, gradually starts going down, and most investors will be keen to sell their cryptocurrencies even faster.
Since more cryptocurrencies are sold, supply increases and exceeds demand, which in return causes a surplus. Whenever there is a surplus, the price goes down to reach new market equilibrium.
All this tendency to sell cryptocurrencies because of the fear that the price will go down, which as a result actually decreases the price of that cryptocurrency, is known as a bearish market.
Bearish markets occur after a bull run and are usually a 20% price decline, which is then followed by another bull run.
Buying Cryptocurrencies In a Bearish Market
If you invest while on the bearish run, you do not need to panic. Even though the likelihood is that the price of the cryptocurrencies you purchase may go down, the possibility that it will go up again also exists. So even if you purchase at the wrong time, perhaps you can profit in the long run.
After Bitcoin's bull run in 2017 where the price went close to $20.000. its price drastically decreased. However, as of April 2021. Bitcoin's price is around $60.000. which is almost three times the value of its price by the end of 2017. If you had invested when the price was at its highest in 2017. which was then followed by a bearish market, you would have made a profit in the long run.
Phases of a Bearish Market
Bear markets usually have four different phases.
- The first phase is characterized by high prices and high investor sentiment. Towards the end of this phase, investors begin to drop out of the markets and take in profits.
- In the second phase, stock prices begin to fall sharply, trading activity and corporate profits begin to drop, and economic indicators, that may have once been positive, start to become below average. Some investors begin to panic as sentiment starts to fall. This is referred to as capitulation.
- The third phase shows speculators start to enter the market, consequently raising some prices and trading volume.
- In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull markets.
Bottom Line
Bearish refers to market pessimism and price declines. If you want to invest in cryptocurrency, you will need to know what market you are in and this is about what is the meaning of bearish market.
