How You Can Handle a Volatile Market
Venturing into the world of cryptocurrencies is an exciting journey. That said, if you are just getting into cryptocurrencies, you have only ever seen the good times. Experienced investors know that cryptocurrencies go through phases with ups and downs. If you want to stay in it for the long term, you have to understand that price fluctuations are part of the journey.
The terms "bull" and "bear" are often used to describe the development of crypto markets, meaning whether they are gaining or losing value. In this context, a rising market is called a bull market, while a falling market is classified as a bear market.
Since the crypto market is generally volatile and fluctuates on a daily basis, these terms refer to longer periods of time when things are either predominantly up or down.
Bearish vs Bullish
While the term bull market can be used in a broad sense to describe any strong market activity, it is often used in traditional markets when the price of an asset rises by 20% or more from its previous low.
Bull markets are defined by optimism, investor confidence and the expectation that positive results will last for an extended time period. It is difficult to predict exactly when market trends will change. Some of this difficulty is that psychological effects and speculation can sometimes play a large role in the markets.
Cryptocurrencies have just come out of a three-year bull market. Many experts believe that this upswing was set in motion by institutional investors such as banks and hedge funds. These investors contribute huge amounts of money in one fell swoop, so prices can shoot up very quickly. Other investors try to jump on the rising prices and also buy, which keeps the momentum going. Past experience has shown that bull markets do not last forever, so investor confidence eventually fades, triggered by unfavourable developments such as new legislations or unforeseen circumstances such as the COVID 19 pandemic.
A sharp fall in prices can trigger a bear market, in which more and more investors assume that prices will fall further. This leads to a downward spiral as they sell to avoid further losses. For those who invested in cryptocurrencies at the height of a bull market, it's easy to feel frustrated when you see a price drop. Nevertheless, price corrections are best seen as an opportunity, not a burden.
How You Can Handle a Volatile Market
It is important to remember that market volatility is unavoidable. By nature, markets move up and down in the short term. Therefore, it is even more crucial to keep an eye on your long-term goals and employ measures that can help you weather this volatility. Here are some actions to keep in mind:
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3. Long-Term Investing
Short-term losses can cause anxiety, but letting emotions guide investment decisions can prove costly. A key factor in coping with market volatility is to focus on long-term results rather than the daily fluctuations along the way. Think ahead and keep your eye on the goal.