Course Content
What Is a Bear Market?
Financial markets move in trends. It’s important to understand the differences between these trends to be able to make better investment decisions. How come? Well, different market trends can lead to wildly different market conditions. If you don’t know what the underlying trend is, how are you going to adapt to changing conditions? A market trend is the overall direction that the market is going. In a bear market, prices are generally declining. Bear markets can be a challenging time to trade or invest in, especially for beginners. Most crypto traders and technical analysts agree that Bitcoin has been in a macro bull trend throughout its existence. Even so, there have been several relentless cryptocurrency bear markets. These generally bring more than an 80% decline in the price of Bitcoin, while altcoins can easily experience more than 90% declines. What can you do during these times? In this article, we’ll discuss what a bear market is, how you should prepare for it, and how you may be able to profit in it. If you’d like to read about bull markets first, check out What Is A Bull Market?.
What Is a Bear Market?
About Lesson
One of the simplest strategies traders can use in a bear market is to stay in cash (or stablecoins). If you’re not comfortable with prices declining, it may be better to simply wait until the market gets out of bear market territory. If there’s an expectation that a new bull market may come at some point in the future, you can take advantage of it when it does. At the same time, if you’re long-term HODLing with an investment time horizon of many years or decades, a bear market isn’t necessarily a direct signal to sell.
When it comes to trading and investing, it’s generally a better idea to trade with the direction of the market trend. This is why another lucrative strategy in bear markets could be to open short positions. This way, when asset prices are going down, traders can profit off the decline. These can be day trades, swing trades, position trades – the main intention is simply to trade in the direction of the trend. With that said, many contrarian traders will look for “counter-trend” trades, meaning trades that are against the direction of the major trend. Let’s see how that works.
In the case of a bear market, this would be entering a long position on a bounce. This move is sometimes called a “bear market rally” or a “dead cat bounce”. These counter-trend price moves can be notoriously volatile, as many traders may jump on the opportunity to long a short-term bounce. However, until the overall bear market is confirmed to be over, the assumption is that the downtrend will resume right after the bounce. 
This is why successful traders will take profits (around the recent highs) and exit before the bear trend resumes. Otherwise, they could be stuck in their long position while the bear market continues. As such, it’s important to note that this is a highly risky strategy. Even the most advanced traders can incur significant losses when trying to catch a falling knife