A bear market is a period when the price of an asset has fallen 20% or more from recent highs. A bearish trend is also called a downtrend, during which investors give in to panic since an index of their fear increases. Here are the key things you need to know about a bear market!
What Is a Bearish Trend?
As mentioned before, a bear market is a period when the price of an asset has fallen 20% or more from recent highs. A bearish trend is the same as a bear market and is also called a downtrend, which is opposed to a bull market.
The term ‘bearish trend’ is mainly associated with the stock market but is also used in relation to real estate, fiat currencies, and cryptocurrency markets.
Let’s take, for example, a Dow Jones Industrial Average, a stock market index that measures the value of 30 major US companies. Let’s say it closed at 26,548. If the index drops to 21,238, this may indicate a bear market’s beginning.
A bearish trend occurs in the face of a general economic downturn. For example, during a 2020 crisis due to the coronavirus pandemic, the US stock market decreased by almost 34%.
A downtrend can also occur in the context of government policy. One should recall recent bans by the Chinese authorities on the crypto market, which pulled assets down.
Still, do not confuse a bear market with a correction. The latter implies a fall of 10-20% within a maximum of two months. That is, it is a short-term trend.
These dips are fairly common in fiat currencies, and stock markets, but not every decline means that an asset is entering a bear zone. As a result of a correction, prices could fall by about 10% from recent highs. Such short-term impulses take place when the value of overvalued assets corrects to calm down an overheated market.
How to Trade in a Bear Market?
While bear markets can test investors’ strength, there can be unexpected trends even during a general downturn. So, shares of some companies can reverse the trend and continue to grow. Conversely, when stock markets perform well, individual company stock prices can enter a bearish zone and fall sharply, even if other corporations in the index perform well.
Unfortunately, it is impossible to understand exactly when a downtrend will begin. Based on macroeconomic indicators, oscillators, and the level of volatility, one can only guess whether the market is at the beginning of a bearish trend or already in the middle of it.
How to Act During a Bear Market?
The main thing is not to panic. A bear market is part of an economic cycle.
If your portfolio contains tools that suited you in all respects before the fall, then you should not sell them during the collapse. During a bearish trend, on the contrary, investors actively buy assets. For example, during the fall in bitcoin prices, whales bought digital gold for millions of dollars.
Thus, the bearish trend is the best time to buy all leading cryptocurrencies at bargain prices. If you’re wondering where to buy some crypto, you should definitely think about doing it at Switchere. On our platform, you have an opportunity to buy all leading cryptocurrencies in the fastest and most convenient ways using any available payment method. Moreover, we offer some surprising bonuses! Users of our platform enjoy a 0% service fee for the first order.