Investing your hard-earned money in crypto assets in the hopes of profit is a long game. There are inevitable bull and bear runs that will sometimes cause prolonged losing runs. The serious part, however, is that these cyclical runs may last for months or even years. Hence, entering the market at the wrong time may stagnate your funds for long periods.

The good part is that most financial markets have a cyclical nature once they have established themselves. The next part of solving this puzzle is to ride the waves with due diligence, good market research, and careful planning.

Cyclicity of Markets

The solid basement on which financial markets are built ensures financial cyclicity. Cryptocurrency markets also tend to follow this cyclical pattern. Understanding and disseminating the reasons and technicalities behind this cyclicity is important.

There are phases in the cyclicity of cryptocurrency assets. To better understand the idea of bull markets and bear markets, one must understand these phases and identify where they are positioned as they enter the market.

Phase – 1: Accumulation

Accumulation period occurs when the market is at a low, when it is largely stagnant. At this phase, buyers who will be responsible for the coming bull run slowly enter the market. The stagnant phase slowly starts transitioning as the new buyers start buying the asset at lower prices.

Phase – 2: Bullish Curve

The prices increase as more buyers pool into the market. The expectations are high at this point; as trading continues, there isn’t enough supply to meet the demand, which inevitably leads to a bullish curve.

If the price increases by 20% or more from the past lowest point, it is considered a bull run. This phase is characterized by a set of speculative buyers expecting the prices to rise. This may continue for a long period of time, even for years, until it too reaches its stagnation point.

Phase – 3: Distribution

The preceding bullish phase induces a state of euphoria in traders, which dies out by this phase. Here, the buyers start to feel conflicted about the future of the asset. This slowly induces a selling pattern among the previous buyers.

It is at this time that seasoned players and large-volume holders slowly start exiting the market by selling out. This will stabilize the price, which has lost its momentum from the bull run. This phase precedes the bearish curve or the bearish phase.

Phase – 4: Bearish Run

Following price stabilization, the market gradually sees prices fall back. This is yet another phase that can last for longer periods, spanning months or years. The falling prices induce even more panic, and sellers will dominate the market, making the price fall further.

Identifying the Trends

The trading platforms often feature several mathematical tools that can visualize the market data. These tools are called indicators. Indicators come in different categories, each with its own specific form and function.

Indicators are broadly classified into three groups:

1. Momentum Indicators
2. Volatility Indicators
3. Trend-Following Indicators

Choosing the right set of indicators is of paramount importance. The wrong indicators can confuse and even prompt you to make the wrong decisions.

Combining the right indicators will create a powerful tool for making informed decisions. They help manage risk effectively and will help you ride the right waves of trading. Several negative trends dominate the field of using indicators, one major example being indicator redundancy.

Using the indicators from the same category causes indicator redundancy. For example, using three momentum indicators will only provide details about the market’s momentum, but rather amplify it. This can lead a trader to make the wrong assumption about where the market is about to go, inevitably making the wrong decision.

Conclusion

Financial markets have the peculiarity of cyclicity, and making the most out of this cyclicity is what determines the success of a trader. With bull and bear runs recurring periodically, the key to success lies in understanding when and where to place the right trade.

A trader who is armed with such information makes the right decision and takes profits; they are less likely to make sentimental decisions, and in the long run, this aspect of trading becomes a marker of winning trades.

FAQ?

Financial markets have the peculiarity of sustaining the trend for longer periods, given that the conditions are favorable. Hence, a series of higher highs can last for years.

RSI, or Relative Strength Index, is a momentum indicator that indicates the directional strength of a market movement.

Normally, values above 70 in RSI indicate the market’s overbought condition and hence a bull run.

No, any single indicator is never 100% accurate; that is why they are used in meaningful combinations.

The common mistake investors make during bull runs is believing it will last forever and investing beyond their capacity.