Trading crypto in the bear market is one of the most difficult times for most traders, including advanced traders, but as the saying goes, the bear market produces the best traders, and millionaires are born. Trading without the proper skills, such as market structures of the crypto market and implementing your strategy, is akin to exposing yourself to risk, which could cost you your life, but in this case, your trading portfolio.
Trading goes beyond buying and selling based on the feeling that this is the best time to buy or sell an asset. Understanding the market is in phases or cycles gives the trader, investors, and institutions an advantage to trade with the necessary edge and the technical tools needed to produce a great return on investment (ROI) over time.
Let’s look at how most traders, investors, and institutions take advantage of the different phases or market structures to produce consistent profits and use the right tools to identify these different market structures.
What Is Market Structure
The market structure, also called market cycles or phases, is a given stage or framework at which the crypto market is currently trading. Understanding the current market structure helps a trader to condition trading techniques and strategies to yield the best results. The market structure highlights important support, resistance, and swing highs and lows.
There are four common types of market cycles- accumulation, distribution, uptrend, and downtrend phases; let us discuss them with the help of the chart.
BTC Market Cycle | Source: On Tradingview.com
Accumulation Phase: This phase forms when their prices flatten after a long decline in price, which is a potential market bottom. At this point, institutions, investors, whales, and highly experienced traders begin to show interest and buy these assets, considering how cheap the prices have become at discounted prices. The accumulation phase is followed by a loss of interest, disappointment, boredom, and a lack of trading activities.
Distribution Phase: This phase is characterized by sellers dominating this market, creating mixed feelings after a bullish uptrend. Prices continue to range in this region and can last from weeks to months, with the market moving in the opposite direction. This market is marked by price peak patterns- head and shoulders patterns, double top patterns, or triple top patterns with a subsequent sharp decline in price. This market phase is dominated by combined emotions of fear, greed, and hope for the market to continue its rally.
Uptrend Phase: This market phase is marked when cryptocurrencies start to rise in price after reaching a stable point. Early traders, investors, and institutions that recognize this phase start buying into great crypto assets, with many hoping to make a fortune. This phase catches the attention of media outlets, and many are carried away with feelings of euphoria as they begin to FOMO (Fear of missing out) in a bid not to miss out.
Downtrend Phase: This phase is the most painful as traders who bought during the distribution phase suffer great losses together with inexperienced traders who are new to the crypto industry. Most traders at this stage cut losses and quit trading.
Identifying the crypto market cycles will help you make good and better judgments regarding trading and investment in crypto assets and 10X your portfolio.
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Featured Image From zipmex, Charts From Tradingview