An Analysis of Crypto Bull & Bear Cycles And How to Trade Them

By Stan Peterson
Published December 31, 2021 Updated December 31, 2021

An Analysis of Crypto Bull & Bear Cycles And How to Trade Them

By Stan Peterson
Published December 31, 2021 Updated December 31, 2021

You’ve most certainly come across the phrases bull and bear if you’ve considered trading cryptocurrency, stocks, or any other asset. Do you have any idea what that means?   In its most basic form, a bull market is one that is rising, whereas a bear market is one that is falling. With cryptocurrencies quickly becoming the most popular asset class among investors, it’s essential to become familiar with trading terms like these in order to get the basics right.

So, here are all the basics you need to be aware of.

Moving on beyond the simple definition, a bull market is defined as a period of time where demand exceeds supply. On the other hand, a bear market is one in which demand is lower than supply.

What is a crypto bull market?

A bull market is defined by rising prices and increased investor confidence. In terms of the crypto market, this means that in a bull market, cryptos will continue to appreciate in value, and hopeful investors will do everything possible to diversify their holdings. Overpricing of specific projects and increased mainstream attention to a cryptocurrency are other signs of crypto bull markets.

The Covid-19 outbreak, which sent the crypto industry soaring while traditional financial markets collapsed, or endorsements from well-known figures like Elon Musk, which sent Bitcoin values skyrocketing, are both examples of crypto bull markets. It’s crucial to remember, though, that while even little good news can cause asset values to rise, hostile media coverage or unfavorable economic conditions can drive asset prices to fall just as quickly.

What is a crypto bear market?

A crypto bear market, on the other hand, is one in which investor confidence, along with prices, plummets. One example is the infamous crypto crash in December 2017, when BTC values plunged from $20k to $3.2k in only a few days.

It is critical for traders, especially beginners, to grasp market sentiment and distinguish a bull market from a bear market in order to master the fundamentals of crypto trading. Technical analysis is one technique to accomplish this. Reading chart patterns is one of the most prevalent and fundamental components of technical analysis. They give valuable information to investors and traders, allowing them to take the best possible positions in the market and grow their portfolios. The ability to identify the relevant chart patterns will undoubtedly provide you with a competitive advantage in the market and add value to your future analyses.

The folks at Delta Exchange are committed to trading education and insights. We give you, 3 of the most common indicators used.

  1. Exponential Moving Average

The exponential moving average (EMA) is a technical chart indicator that tracks an investment’s trend directions over time. The EMA not only emphasizes recent price movements but also reveals previous chart patterns, thus enhancing comparability.

This indicator is the greatest tool for traders who trade in fast-moving and turbulent markets like the crypto market since it informs you about the most recent price movements. Aside from showing trend direction, the exponential moving average (EMA) also serves as a dynamic support and resistance level.

However, EMA has a few flaws when it comes to crypto trading. Strong bullish trends, for example, are relatively prevalent in cryptocurrency trading, but these cannot be detected using the EMA. EMA can also provide false signals in a highly volatile market like the crypto market.

In the above chart,

  • Price that is stable above the EMA indicates an uptrend
  • Price that is stable below the EMA indicates a downtrend, and
  • Price that is unstable at the EMA indicates a correction
  1. Golden cross

A golden cross chart pattern can be defined by the crossing of a short-term moving average above a long-term moving average. Usually perceived as a signal of a strong bull market, most traders view the golden cross as a holy grail pattern.

Source: Investopedia

The golden cross pattern is typically characterized by three stages:

  • Stage 1: A downtrend occurs at this point, but it will be quickly overcome as selling activity is dominated by increased buying interest.
  • Stage 2: Following the initial slump in Stage 1, this stage anticipates an uptrend, with the Golden Cross emerging when the short-term average crosses from below to above the long-term average, confirming a trend reversal.
  • Stage 3: At this point, the new uptrend is extended until a bull market can be confirmed. As the uptrend continues, prices also keep rising.

Despite being one of the most popular chart patterns among traders, the golden cross has a few disadvantages. Most importantly, it is a lagging indicator, which means it can only be detected after the market has advanced. Although this makes the pattern highly reliable, it also implies that because of the lag, determining whether a signal is fake or not becomes somewhat tricky. As a result, it is advisable to utilize this pattern in combination with other indicators rather than relying solely on it.

  1. Death cross

Known as the inverse of the Golden Cross pattern, the Death cross pattern typically occurs when the short-term moving average crosses from above to below its long-term moving average. Traders see the Death cross pattern as an indicator of the bear market moving forward, with the potential for a major sell-off.

Source: Investopedia

Best practices for trading!

No indicator can accurately forecast the future because they are all “lagging.” If we’re looking at Death Cross as an example, you will find that despite their potential in anticipating previous major downturn markets. Hence, before using any indicator, make sure that it is validated and used in combination with other signs and indicators.

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Disclaimer The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.
Stan Peterson
786 Articles
Being an active participant in the Blockchain world, I always look forward to engage with opportunities where I could share my love towards digital transformation.