What is Bearish and Bullish?

The world of cryptocurrency trading is full of unique concepts and language, and among those concepts, bearish and bullish are two of the most used. Find out here what they mean and how they are used in trader jargon.

Dhe concepts that you will come across very often in cryptocurrency trading are bearish and bullish. Two concepts that you must be very clear about and that have an important weight in the commercial psychology of cryptocurrencies and, of course, in stock operations or in the Forex sector, where these two terms are also used.

But what exactly do these two concepts mean and how should we prepare for them?

What is Bearish?

When we talk about bearish, we mean a bear market, a market where the value of an asset is declining. Typically, a market is determined to be bearish, or bearish, when the price of an asset embarks on a decline of more than 20% of its value.

The symbol of this concept is the bear (“bear”, in English), in clear allusion to the way of attacking with the claws down that this animal uses against its prey, in this case, the trades and their holdings. It also alludes, in speculative markets, to the sale of bear skin before hunting it.

When we are in a bearish market, we find ourselves in a pessimistic market, where investors seek to protect themselves from losses while waiting for new opportunities and markets where they can diversify. Given this situation, the supply of that good or asset begins to increase, which in turn further accentuates the decline in the value of the asset in the face of reduced demand.

A good general example of this behavior can be seen at times of “market crashes”. One of the best-known market crashes was that of the dot-coms in the year 2000. At that time, companies like Amazon had a value of 106,7 US$/share and, after the debacle, that value became 6,2, US$XNUMX/share. It was very clear that at that moment Amazon investors were terrified and with a markedly pessimistic psychology about the future of this company.

Suffice to say, the share value didn't recover to its 2000 levels until 2007. But then, the subprime crash of 2008 hit. At that point, the share value plunged again to $35,84. US$/share, finally getting out of that chaos in 2009. Of course, these two cracks marked strong bearish trends around the world, but they also allowed the creation of new markets and forms of money. One of those new creations was precisely Bitcoin, which was created by Satoshi Nakamoto, in response to the subprime crack of 2008.

Of course, with cryptocurrencies the story is no different, since the ecosystem has also had its bearish episodes. The “crypto winter” of 2018 was the first long-lasting bearish market event experienced by the virtual currency markets. At that time, Bitcoin went from a value of more than 20.000 US$/BTC to close to 3.300 US$/BTC and the trend continued until 2020, when it was possible to recover the level of 20.000 US$/BTC again. Even many crypto analysts think that currently (January 2022) the market is in the presence of the beginning of a bearish market, which seeks to correct the price increase that Bitcoin has sustained since 2020.

What is Bullish?

When we talk about bullish, we talk about a market with an upward trend. The symbol of this concept is a bull, in clear allusion to the attack with the horns up that this powerful animal applies with extraordinary force.

This means that when we are in a "bullish" or "bullish" market, the environment in that market is optimistic. Not only the value of the asset increases, but in general, the demand (purchase) for it increases, in a clear search for benefits. At this point, if a bullish market occurs in the midst of little supply of that asset, the effect of that bullish trend is increased, following the clear pattern of the Law of Supply and Demand, as those with the capital to pay for the asset they will, even in the midst of a constant rise.

Does this behavior seem strange to you? The truth is that it is quite common and in fact, you can see it all the time in your life. A very simple example to understand this, we can see it with a very common good in our homes: wheat. When there is a good harvest, its availability increases (greater supply) and therefore its price tends to fall (and we are happy about it). But, it is the case that the harvest is bad, the low supply compared to demand causes the tomato price to skyrocket and, at that point, a bullish period begins (increase in price) for that sector. The effect is quickly seen in the cost of bread and any other derivative of wheat which, by the way, is one of the most important commodities worldwide, having its own indicator for futures.

Thus, we can understand why if a trader sees a rise in the price of a sector and, at the same time, has strong indications that the value of that sector may continue to rise, then the trader will begin to buy it, driving the price, since As supply is lower and demand remains or increases, then the price will continue to rise.

What to do with this type of market?

If you are a person with little experience in the world of cryptocurrencies and you find yourself facing any of these situations, you may feel overwhelmed by the avalanche of information and forecasts about what will happen to the price of the cryptocurrency that you have in your possession. After all, at times like this the psychological pressure created by the market price and hundreds of thousands of people giving their opinion is intense.

However, there are some good tips that you can put into practice in this type of situation and here we give you some:

in case of bearish

1. If the price of an asset begins to decline, the first thing you should do is understand the reason for the decline. Is it a price correction and consolidation after a prolonged bullish market? Is it a pump&dump scheme you have fallen into? Any security or third-party issues related to the asset? Researching and learning the truth behind the drop is critical to making the decision to hold or leave.
2. Review the asset's price history. Assets like BTC have dropped dramatically in the past. But there is a pattern that always repeats itself: the recovery always exceeds the previous value and exceeds it by far. If you support a strong project that, even in bad times, continues to develop looking to the future, then this advice can be very useful for you to make the decision to continue or step aside.
3. In case you want to take advantage of a bearish that you see coming, then go short. Sell ​​your position at the current price (a high price), and when the price of the asset drops, buy back. That way, you will be able to get more tokens than you had initially, and with the next bullish you will get better profits. This option is EXTREMELY RISKY, so you must be clear that the risk of loss is enormous and that such an action is your sole responsibility.
4. If you are a strong HODLER hold your position and buy more (the well-known “Keep Stacking” strategy). This is a good option if you are looking for long-term rewards and invest money that does not put your quality of life or that of your family at risk.

In case of bullish

1. If the price of an asset starts to rise, keep an eye on the reasons. If it is an asset that barely opens the market, it is best to stay contained because those bullish trends can last only seconds and then fall resoundingly fast. Also be aware that it is not a simple pump&dump scheme, in which case, do not fall into the trap and take that risk.
2. If you have the ability to buy more and you have evidence that the bullish will continue longer then buy more. Of course, NEVER put your quality of life and that of your family at risk, follow the premise of "Invest only what you can afford to lose", so that in the worst case, said loss does not leave you bankrupt.
3. DON'T SELL IN A HURRY. A very common mistake is to see the price of an asset start to go bullish and then sell the position at a “high” price, when in fact the bull market is just beginning and you miss the opportunity to gain a little if you are patient. In those cases, it is best to stay informed and see how far the bullish momentum is sustained.