Market growth is temporary, so a price reduction will always follow it. It is absolutely normal, so a trader should accept it as a fact. But what to do when assets go down, and your cryptocurrency portfolio follows them? It is the moment when you should know the difference between a correction and a bear market. That’s what we’re going to talk about.
What Is а Correction in the Crypto Market ❓
A correction is a sustained drop in the crypto price of up to 10% from the last figure. This phenomenon is short-term and usually does not signify a future decline phase. But sometimes, it signals an actual collapse of the asset.
What Causes Crypto Market Correction ❓
In most cases, a correction is a market reaction to asset overvaluation or an external crisis (e.g., the March 2020 pandemic). In other cases, market fluctuations are caused by a fall in the economy or problems in a particular industry. It is also influenced by significant events, such as the Segwit launch or reaching a new high.
What Is a Bear Market ❓
A bear market is a period when the price of cryptocurrency assets falls by at least 20% from the previous high and remains at that level due to pessimistic market sentiment.
The only way out that comes to an investor’s mind is to exit the market. But experienced investors advise not to be afraid of a bearish trend because it is the best opportunity to buy assets for the long term.
How To Adapt to a Bear Market ❓
🔸 Diversify your overall portfolio by adding stable and well-known digital currencies and projects with solid collateral.
🔸 Choose strategies where you must invest a certain amount in digital currencies over a specific period. It will compensate for the effects of price spikes by averaging the price.
🔸 Moderate your appetites. It is better to make small profits, but often, than to hit the big score with the risk of losing everything. It is also recommended to increase the stop loss level.
🔸 Keep your own emotions under control. A bear market is capable of disrupting a trader’s peace of mind. It is dangerous because it is possible to make a bad investment in crypto assets guided solely by emotions.
A bear market is a normal part of crypto trading, so you should not panic when a bearish trend starts.
How To Navigate Corrections and Bear Markets ❓
The first thing to do is to pay attention to the economic situation. It will allow you to understand how to act when asset prices fall.
When traditional markets fall, cryptocurrencies take up the challenge and also go down, forming a bear market. The best way out, in this case, is to have a long-term strategy and stick to it. If you want to be more cautious, you can pay attention to short selling and put options, which can profit from a bearish trend.
If the markets rise, however, the price declines are caused by corrections. But you can and should invest at this time, as the underlying bullish trend will persist and lead to new highs.
If you are unsure of the market situation, stay diversified and follow your chosen strategy.
Have you been able to tell the difference between a correction and a bear market in practice ❓