Bear Market (السوق الهابطة) Definition:
A bear market is a state in the financial market where prices continuously decline over a long period. This period is characterized by fear and pessimism among traders and investors, leading to increased selling and decreased demand for assets. Why is it called "bearish"?
The term is inspired by the way a bear attacks, striking downwards with its claws, symbolizing falling prices.
Key Characteristics of a Bear Market:
Price Decline: Assets often decline by 20% or more from their previous highs. Market Pessimism: Traders feel anxious, leading to increased selling and decreased buying.
Declining Trading Volume: Trading activity may decrease due to investor withdrawal.
Negative News: There are often economic or political news (such as financial crises or strict regulations) supporting the decline. Practical Example:
In the crypto world, we experienced a bear market in 2022 when the price of Bitcoin fell from around $69,000 in November 2021 to below $20,000. This was driven by rising interest rates, the collapse of trading platforms, and a lack of confidence in the market.
How does a trader benefit from a bear market? Short Selling Strategy: Selling the asset at a high price and buying when the price drops to make a profit.
Long-term Investment: Buying assets at low prices during significant corrections, waiting for the next bull market. Monitoring Support: Identifying support levels (we will explain this later) to know when the decline may stop.
Risks: The decline may last for long periods, leading to significant losses if risks are not managed properly. High volatility may make it difficult to time entries or exits correctly.
Advice for Traders: Use tools like Stop-Loss to protect capital. Avoid making emotional decisions under fear pressure, and rely on technical or fundamental analysis.
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