Keeping a close eye on market trends is a critical way to make sure your assets are performing well. One important question to ask is: What is a bull run market, and how does it impact your investment strategy?
In this article, we define a bull run market, how it relates to decentralized finances, and what you can do to take advantage of this market opportunity while avoiding the risks associated with it.
What Is A Bull Run Market?
Whether you invest in stocks, bonds, crypto, or another tradeable asset, you’ve likely heard the term “bull run market” or “bull market” floating around. This refers to a period when most investors are buying assets, resulting in higher demand and shorter supply.
You’ll also see a similar trend of continually rising prices across markets during a bull run. Instead of a market’s usual rise-and-fall behavior, a bull market’s steady rise may last anywhere from a few months to a few years.
Bull Run Market Features
Along with rising prices, there are a few main characteristics associated with a bull run market. From an increase in jobs available to more investments made, these signs can point to the presence of a bull market.
Bold Market Decisions
One of the primary signs of a bull market is high investor confidence. When investors are confident in a market, they’re likely to make bold or risky decisions based on market performance. This attitude is known as feeling “bullish.”
More Investments Made
People will also increase the number of investments they make, raising their overall risk.
With prices steadily increasing, you’ll likely believe that the trend will continue. This shared belief causes many investors to keep buying more, further feeding into lower supply, higher demand, and rising prices.
Increased Number Of Jobs
With an increase in spending and a strengthening economy, businesses may expand during a bull market. This leads to the creation of more jobs and higher wages, two key factors that drive down unemployment.
More Money Spent
A strong economy paired with low unemployment rates creates the perfect opportunity for people to spend more. Interest rates are typically lower, making it an exceptionally good time to borrow money for major purchases.
Still, the rising trend of a bull market is not always marked by optimism. In many instances, the increase in spending or other unforeseeable circumstances may:
- Result in excess inflation
- Be a market reversal known as a bull trap
- Reverse a bull market into a bear market
These scenarios can be nightmares for investors.
Bull Run Vs. Bear Market
The opposite of a bull market is a bear market. Much like a wide range of other financial terms, there’s a lot of speculation surrounding how bull and bear markets got their names.
The actual origins are still unknown, but one of the most common explanations for the names is the way each animal attacks. A bull spikes upward, while a bear claws downward. With every bull market comes an eventual bear market — what goes up must come down.
For cryptocurrency, the bull run of 2017 is a great example of this. After Bitcoin nearly reached a value of $20,000, its price crashed in early 2018.
Many investors predict that it may be a few years before Bitcoin experiences another bull run market. Even so, be advised that predictions can also lead to overconfidence and bull traps.
What Is A Bull Run Trap?
Once you’ve noticed the factors of a bull run market, you might feel the urge to invest more because you believe all of the characteristics of a bull market are in play.
But you may just be observing false signs that don’t indicate rising prices after a downward trend at all. Rather than catch an early reversal, you’ve actually invested in an asset that continues to steadily decline. This is known as a bull trap.
Investors who follow technical analyses may be at great risk of falling into a bull trap. It’s important to watch for a price level known as “support” when a downtrend pauses due to a concentration of demand.
Let’s say that Bitcoin’s price surpasses previous support levels. This may cause you to purchase more of an asset than you otherwise would in hopes that it will lead to a steady increase in value. Sometimes this happens, but other times it leads to unexpected loss.
Avoiding Bull Traps
To avoid bull traps, don’t make immediate decisions. Consider other factors of the cryptocurrency you’ve invested in or any new position you’ve thought about entering. These confirmations can indicate whether you’re headed for a bull run or falling into a bull trap.
Here are a few specific things to watch for before increasing your investment:
- Unchanged volume (a change to an asset’s value with no increased volume can signify a trap)
- False rebounds
- Lack of range expansion
- Prices descending below previous lows
Keeping an eye out for these signs will help you avoid the downfalls of a bull trap. Once you know how to protect your assets in this scenario, you have a better chance of taking advantage of a bull market when one does occur.
Taking Advantage Of A Bull Market
A true bull run market can be excellent for your investments. Here are a few ways that you can take advantage of this market when prices are on the rise.
HODL
A common way to reap the benefits of a bull market is to HODL (hold on for dear life). Holding your assets in this way leads to an increase in their value and a more lucrative opportunity to sell or trade down the road.
There are many different ways to HODL, from not selling until the asset’s price has reached a predetermined value to never selling at all.
Swing Trade
For a more aggressive strategy, swing trading allows you to play an active part in how you profit from your assets.
While the market fluctuates, swing traders will utilize technical analysis to complete short or long trades depending on whether the market dips and bounces or peaks before pulling back. This helps maximize profits during the fluctuations of a bull market.
Watch Retracements
Retracements occur when a rise in the market pauses and begins to briefly fall. These momentary dips benefit investors looking to buy lower and sell higher.
As the bull market continues to rise, these retracements act as a discount to earn more without necessarily having to spend more.
Diversify
A simple way to prepare for the unexpected nature of a bull market is to diversify your assets. Having a range of stocks, bonds, cryptocurrencies, and more will mitigate risk as you benefit from the rising prices.
Knowing When A Bull Run Ends
Investors often wonder whether there’s an average length of time that bull markets last or how they can predict when a bull market will end.
Simply put, bull markets cannot be sustained forever. On average, most bull markets since 1932 have come to an end just before reaching the four-year mark. However, some have lasted for over a decade.
Knowing when a bull run market will end is virtually impossible. There are signs to understand when it’s drawing to a close, but it has likely already ended at this point.
Features of a bull run nearing its end include:
- A divergence of indexes moving in one direction and stocks moving in another
- Public excitement and excessive media coverage
- Overvalued stocks (in rare cases)
All this to say, at one point or another, a bull market will come to a close. Although purchasing assets in hopes of quickly turning them around for a profit seems enticing, it does not always work out this way. So, what should you do when the market ends?
First, don’t panic. Panic leads to rash decisions and excessive buying or selling. Instead, reflect on your unique situation, and set a plan for how you can best move forward and prepare for a variety of possible financial scenarios.
Be sure to ask questions such as:
- Are you too exposed to one specific market?
- Would it be beneficial for you to invest in lower-risk options, like stablecoins?
- How can you make sure you’re ready for a bear market?
- Would dollar-cost averaging crypto benefit you?
For a more effective long-term solution, find the right crypto exchange to partner with, diversify your portfolio, and earn competitive interest on a long list of crypto options to strategically build your wealth over time.
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