Market Cycles - Bull rallies vs Bear rallies

Market Cycles are an important part of trading and the way the markets move. What do you know about Market Cycles in Crypto?

Market Cycles - Bull rallies vs Bear rallies

Market cycles are a natural advent in any market. However, because the cryptocurrency market moves so quickly, market cycles are especially important to understand in cryptocurrency specifically.

Given that, let’s go over the very simple version of what a market cycle is.

A market cycle is the period between a high and a low, and more broadly the stages in-between.

Psychology of a Market Cycle

Above is what a market cycle looks like on a chart. In the case of Bitcoin, using the terms that describe the phases of a market cycle from the above chart (not official terms, but useful terms) it might look like this:

  1. Institutional investors, early adopters, etc accumulate Bitcoin low (they accumulate during a lower period that looks like anger and depression to those who held from the last peak).
  2. Bitcoin goes up (advanced traders HODL through disbelief and hope – they buy the dip at support).
  3. People get excited and the price goes up even quicker as many FOMO buy (those who bought lower start to distribute some as they mark up the price; advanced traders HODL and/or SELL through belief, thrill, and finally euphoria – start closing longs here).
  4. Bitcoin is distributed high (this phase consists of the price action near the top all the way until complacency; SELL).
  5. Bitcoin goes down (anxiety and denial; SELL if you haven’t, SHORT and play BOUNCES – short the top at resistance).
  6. People get sad and panic (anxiety to panic; SHORT).
  7. Bitcoin goes down even quicker as people panic sell (play BOUNCES – start closing shorts here).
  8. Bitcoin bottoms out in a messy pattern that can see a gradual grind down of the rest of the market (anger and depression; this is the accumulation phase; range trade and accumulate).
  9. Repeat.

If you could suss out all emotion and get it right every time, all you would do is buy at the bottom, ride the wave up, sell during distribution, and then exit or short the market on the way down.

Simple as that really. But we're talking about a 100-year cycle, 10-year cycle, 1-year cycle, or cycles that happen within days, weeks, and months, the concept is the same.

The concept being that human emotions and market mechanics create bubble-and-bust cycles called “market cycles.”

In other words, a market cycle is the natural wave-like pattern that all assets form as people speculate and react to the associated fundamentals, emotional states, and chart patterns that result on a mass scale.

How to trade Bull & Bear Rallies

Remember the basic concept. That is, the “market” goes in “cycles.” Knowing is half the battle. Actually making good investment choices based on all this information is way harder than knowing it all conceptually, because you are human, and thus you will be exposed to pressure to buy high (FOMO/Greed) and sell low (Fear).

Learn by reading the works of others. On the short list of things to do are, read the article “Do you know about crypto market cycles? You should,” study economic bubbles (very, very useful; check out Minsky), or study Wyckoff.

All those will leave you with the same answer as to what you should do: Accumulate when everyone is sad and fearful, distribute (sell) when everyone is happy and greedy, refrain from using credit speculate at the top (unless you are shorting the market), and then be ready to do some summersaults when a fake-out occurs and everything suddenly goes the other way. Make sense?

Can Market Cycles end?

Like every good thing out there, yes. It can end. Market cycles can end, for example, if a given cryptocurrency goes to the graveyard and its price grinds to zero.

You can’t just always buy the dip and expect the next cycle to fire up tomorrow. Remember 2014 – 2015 took a long time to play out (it was a slow bleed, with a lot of fear; AKA a long accumulation period in which everyone who accumulated and held their investment is now essentially rich… and who do you think accumulated? The answer is, crazy people, true believers, and people who understand market cycles).

So what happens now?

Now? Well, do your own market research before diving in.

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There is no such thing as a 100% safe investment, and each decision has its risks. In any case, it is up to you to decide. All content and topics covered are mere opinions and do not constitute investment advice. Trading and investing in Bitcoin or any cryptocurrency carries a high level of risk. We do not assume any responsibility for actions taken upon reading any of our articles. ChainEX is not a financial advisory firm, investment manager, or financial consultant.