Bear and Bull Markets: How Not to Give in to Emotions?
Before we talk about what bull and bear markets really look like, let's see if you recognize yourself in the following scenario. It is a situation that everyone is familiar with. We all have a story like this, and by sharing our experience, we can help the newcomers.
You have discovered the world of cryptocurrency investing, and you are aware people have been making significant money here over the past weeks to months. It's simple - just buy and hold. You observe it for some time and see that it is exactly as they say. You check to see if it's a scam and start discovering exchanges and apps that seem legitimate. If you are of a more daring nature, you somehow find your way around and get “IN”. If not, you might put it off for a while, overwhelmed by the initial complexity, but you are still drawn in by the vision of profit, that FOMO feeling. After all, you’re not going to leave all that profit for others to take and sooner or later you will start buying.
Now that you are "IN" and sharing your joy with others, the satisfied FOMO feeling will cloud your judgment. All you can focus on is profit. You check the value of your investment daily. You are now the first investor in your family. You don't even realize that you are trapped by your own emotions that the market has tricked you into. Sooner or later there will be a price drop, which everyone considers to be a standard price correction. These corrections are normal and most of them then result in new highs. It works until it doesn’t. The latest correction is no longer "just a correction", but rather the beginning of a bear market. Your gains are turning into losses, and you have found yourself in a trap that you refuse to leave. It’s difficult even with years of experience. Let me share with you some useful knowledge that will help you in emotionally charged situations in the cryptocurrency market.
Good to know:
- Always keep in mind what the price chart looks like in a larger Time Frame – TF. I recommend at least looking at the weekly candles and if you don’t use a candlestick chart and only look at a line, then check at least 1-5 years back. This will help you become more aware of what could happen and make decisions with a clearer mind.
- Don’t be swayed by the media. Video creators need more followers for their profits and therefore target your emotions. When you are already afraid of greater losses, these videos will amplify that feeling.
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- Find a trusted and experienced person to follow. This step might take weeks or even a few months. It is necessary for you to see how their advice turns out. Try to simulate how you would turn out if you did what they say. If you find such a person, you will get both emotional and technical support.
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- The emotions you feel are felt by others too. At the end of a bear market, a lot of people are apathetic, disinterested, and quite possibly sell at a loss, along with the prospect of buying at a lower price.
- Most people also have the same emotions in a bull market. Everyone feels rich, in profit, and everyone wants more. It is common for people to put in the most money as their last deposit, just before the cycle turns from bullish to bearish.
- Behind bull and bear markets are primarily VC (Venture Capital) funds and companies. These are whales that have huge capital to trade.
- The biggest funds use algorithms to trade. They have only one task, to suck other people's money out of the market. If the algorithm cannot do this, it is removed from the algorithm portfolio used by these whales.
- The biggest players in the market can manipulate the price. The capital they have at their disposal is so huge that they can buy or sell enough to make the prices move where they want. It doesn't always have to be like that, but it often happens that way. Therefore, it is better for an inexperienced investor to invest for longer horizons and look at a higher Time Frame. This means that you will see the price evolution several weeks back. You can then look for entry positions before the bull market begins. On the contrary, after a parabolic movement, you will already know that it makes no sense to risk your money and enter at a time when everything is overpriced.
Top information at the end:
Bull and bear markets are part of one complete market cycle that consists of 4 phases: accumulation, bull market, distribution, and bear market. Then this cycle repeats again. It sounds simple, but these phases are harder to recognize in the markets. The cycle repeats if there is interest in a given technology, stock, or cryptocurrency.