27 July 2020
“To invest or not to invest”, that is the question. Truth is, as great as it is, investing is often a hard task to undertake. Every trading market is a world of its own. And thus, each of these worlds has its pros and its cons. Somebody new to the Crypto space can get easily overwhelmed at the beginning.
Markets are usually quite volatile. And for a market like crypto, this volatility is even greater. The space is full of terms that an untrained eye may not seem to make much sense. Some of these terms we are referring to are supports and resistances, moving averages and trends, Bulls and Bears. Why are there animals in trading?
Well, in this article, we will clear some of this up for you so you can dive right in to the wonderful world of crypto!
Market Trends – Bulls And Bears
To understand what Bulls and Bears are, we must first understand what market trends are.
A market trend is a direction in which an asset moves in a given period of time.
The fact that there is a trend does not mean that the price of the asset will go up or down forever. This is where volatility plays an important role.
If the trend implies that the asset price will go down, this is known as a Bearish market.
On the other hand, if the trend shows that the asset price will go up, this is known as a Bullish market.
Those who bet that an asset will shrink in strength and price are known as Bears.
On the other side of the spectrum, those who bet that an asset will go up in price and grow are known as Bulls.
This analogy was born because of the way each animal attacks. The Bull hooks its prey with its horns in an upward motion – similar to the movement of the market.
The Bear attacks its prey with its paws in a downward motion – as often happens when the price of an asset falls.
Trading that it will increase in price is going long. Trading that it will decrease in price means going short.
Mistakes To Avoid And How To Win
After identifying what Bulls and Bears are, as well as market trends, you are on the way to being able to trade on the market!
People make many mistakes when they are introduced to these two concepts. The first mistake is to believe that nobody can make a profit when an asset price goes south. This is false. In other words, if your technical analysis leads you to believe that an asset will decrease in value, you can trade (place a short), and make money if it does drop.
Another concept you have to know is that Bullish markets, and Bearish markets are not traded the same. In fact, the longer a Bearish period is extended, the closer it is to the end. This brings with it a lot of risks, but the more risk, the more potential gain. This can happen in reverse – a very long Bullish period means an even steeper drop. This is where a well-known saying among traders comes in: “buy the blood, sell the news”.
If you are an investor passionate about high risk and profit, you have options. In this case, it is recommended that you counter trade the market in periods of extreme euphoria or great uncertainty. Therefore, in times of great euphoria and everyone is buying, you should sell. In times of great uncertainty and everyone is selling, you should buy. These are usually the tips of the iceberg for each market trend.
Another important thing to do in either a Bullish or Bearish market is to derisk as you win. If you are already winning a trade, you can start selling to secure some gains. For instance, once you have doubled your original investment, think about taking the profit of what you initially invested. Therefore, whatever is left in the investment is free money and all profit.
Finally, the most important thing to know when trading is: do not be a perma-Bull or perma-Bear. Do not bet than an asset price will go down to zero – making you a permanent Bear in the process. Likewise, don’t think that an asset doesn’t have an upward limit – being a permanent Bull will only ensure that you lose your money. The best part of being a trader is being able to win, no matter the trend.
Be diligent with your money, and profit will come.