Trees don’t grow in the sky! Have you ever seen or heard this statement? It depicts the reality of the market which cannot be in perpetual growth and that is exactly the subject of this article, the market cycle!
Disclaimer: Our content is intended to be used and must be used for informational purposes only. It is very important to do your own research and analysis before making any investment based on your personal circumstances.
What is a market cycle?
To understand what a market cycle is, we need to look at economic cycles. An economic cycle is divided into four distinct phases, first the recovery phase which is characterized by low interest rates which encourages investment.
Then comes the expansion phase with an increase in production and investment. This sustained investment and growth eventually leads to overheating, which increases inflation and interest rates in an effort to maintain the latter at a controllable level.
The last phase is the recession, which then sees a drop in consumption.
What does this have to do with the market?
The financial markets are an integral part of the economic system in which we live and are also characterized by phases of expansion, recovery, overheating or euphoria and fear. We will more commonly call these trends.
A bull cycle will be characterized by a sustained increase in the price of financial assets, such as the one we are witnessing at the time of writing, whether in the traditional market or the crypto market. In a bull cycle, we would then say that prices are following an upward trend.
Conversely, a bear cycle will be characterized by a drop in prices, most often in a dazzling manner as soon as panic takes hold of the market. Prices then follow a downward trend.
The importance of timeframe
A cycle or a trend is indeed very dependent on our analysis horizon. When we talk about a bull cycle on BTC for example, we analyze the trend on a daily or weekly timeframe, the same is applied to the classical market.
Nevertheless, even if it is not the main subject of today’s article, it is worth mentioning that there are shorter-term cycles or trends in the financial markets. This can range from a few hours to a few weeks depending on our time horizon of analysis.
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The current BTC cycle
This is perhaps the easiest statement to make at the moment, it is clear that BTC is currently in a bullish cycle.
How can you tell? It’s easy! The highs are getting higher and higher and the lows are getting lower and higher, which is the definition of an uptrend.
The most important question is how long will this last? Unfortunately there is no crystal ball that can give us such an answer otherwise we would all be billionaires already, right?
Is this cycle different?
We can see that BTC has followed a rather parabolic evolution and it would be unwise to believe that it can last forever. Many analysts believe that BTC will reach $100,000 or even more and this is indeed very possible.
Nevertheless, from a technical point of view this bullish cycle is not so different from others, with a rather parabolic rise. From a fundamental point of view, it is true that this bull market differs from the previous one, especially regarding the participation of institutional capital.
However, this will probably not be enough of an argument to allow Bitcoin to go up indefinitely without a retracement as it has done before. For the time being, however, there is no reason to question the current upward trend.
How to act in each type of cycle?
In the case of a bull market, the procedure is quite simple. The first thing to do is to wait for confirmation that a trend is in place, after a series of higher highs and higher lows for example.
Then we need to adopt a trend following strategy based on the continuation hypothesis. Until proven otherwise, you should adopt a continuation strategy and only a confirmation of a downtrend should change this.
In the case of a bear market, the trading strategy must be adapted and be more conservative. Shorter targets and less frequent trades are a good example.
What if I don't have the right strategies?
It is indeed challenging to keep your pulse on the market, monitoring the trend on a regular basis. On top of this, the crypto market never sleeps. It operates 24/7/365. Given the above, how do you take advantage of the opportunities in crypto trading to grow your wealth?
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The SMART bots are on default Conservative Strategy. With the launch of the Aggressive Strategy, you will be able to choose which strategy to go with based on the market cycle and your risk profile. Should you wish to enable both Conservative and Aggressive strategies, it’s possible too! This means, the trading capital limits of the SMART Bots subscription packs will be increased with the launch of the new Aggressive Strategy.
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