Even though trading in crypto is difficult, even for advanced traders, it can also be one of the most profitable times to trade. Millionaires often emerge from the bear market. Trading in the bear market without knowing the markets and how to execute your strategy is equivalent to taking a risk with your life. This could include your trading portfolio.
Trading is more than buying and selling assets. Knowing the markets in their phases gives traders, investors, as well as institutions, an advantage. This allows them to trade with the right technical tools to achieve a long term high return on investment.
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?
A market structure (also known as market phases or cycles) is an indication of the current stage in which the cryptocurrency market is trading. A trader can use this information to determine the most effective trading strategies and techniques. This market structure highlights key support, resistance and swing highs/lows.
The market cycle can be divided into four types: accumulation, distribution and uptrend. Let’s look at the chart to see how they compare.
- Accumulation PhaseThis is when the market bottom occurs, and their prices begin to flatten following a prolonged decline. Institutions, investors, whales and experienced traders start to take an interest in these assets and begin buying them, given how low the price has fallen. Following the accumulation phase, there is a period of disappointment, boredom and loss of interest.
- Phase of distributionThis is the phase where sellers rule this market and create mixed feelings following a bullish trend. The market moves in an opposite direction, so prices can fluctuate in this area for weeks or months. The market’s price peak is marked by head-and-shoulders patterns, double top or triple top patterns and a sharp fall in prices. This market phase is marked by mixed emotions such as fear, greed and optimism for the market’s continued rally.
- Phase of the UptrendAfter reaching a steady point, cryptocurrencies begin to increase in value. This phase is when investors, traders, and institutions recognize it. Many are hoping for a great deal. Many feel euphoric and begin to fear missing out.
- Phase in the downtrendDistribution phase: The most difficult phase. Inexperienced and new traders, as well as those who purchased during this phase of trading, suffer huge losses. This is the stage where traders cut losses and stop trading.
You can identify the market cycles that affect crypto assets, which will allow you to make better and more informed decisions regarding investment and trading.
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Featured image from zipmex. Charts From Tradingview