Bullish vs. bearish: Key differences and trading impacts

In financial markets, emotions can run high. But, making decisions rooted in emotions often comes at a cost. 

Across stock, commodity and cryptocurrency markets, understanding the difference between bullish and bearish market conditions can help investors strategically time trading decisions and avoid getting swept up in FOMO or FUD. 

This is especially important considering our Crypto FOMO Survey found 63% of crypto holders admitted emotional trading has negatively impacted their portfolios.

Spotting whether the market is bullish or bearish is a skill, and learning to read the following key indicators could help you plan your moves instead of playing catch-up.

In any asset market, bullish refers to sustained growth, positive sentiment and rising prices, while bearish signals contracting growth, negative sentiment and falling prices.

Financial analysts commonly talk about a bullish vs. bearish stock market, but the same principle applies in crypto. Regardless of the underlying asset, bullish means up and bearish means down.

Beyond highlighting price trends, bearish vs. bullish offers a glimpse into market psychology by highlighting the current collective attitude toward crypto assets. 

For a deeper look at what’s driving that sentiment in real time, take a look at our Crypto Fear and Greed Index.

Generally, there's greater enthusiasm during bullish phases, which often translates to a heightened appetite for smaller market cap and more volatile .

By contrast, bearish markets are more cautious and pessimistic, and traders are more likely to play it safe and avoid smaller, speculative projects.

Key characteristics of a bullish market include increasing prices, widespread optimism and strong buying pressure. These factors suggest greater confidence in crypto's growth potential, often buoyed by positive news and favorable macroeconomic conditions.

But why do traders call these green times "bullish?" Just look at how a bull typically attacks. A bull's upward thrusts perfectly mirror a bull market's meteoric rise. 

You're most likely in a bull market if you notice these three signals: 

• Broad price rises: The key in a bull market is that most cryptocurrencies move up and to the right. While Bitcoin may lead the way, a genuine bull market positively affects the entire crypto ecosystem.  
• Positive news and innovation: Bull markets often coincide with catalysts like regulatory clarity or growing institutional adoption. Other positive features during a bull market may include network upgrades or services that make crypto more accessible. 
• Higher trading volumes and investor confidence: As prices continue to pump, more traders and investors fall for the "fear of missing out" (FOMO). You'll often see trading volumes spike above their historical averages to capitalize on upward momentum. 

In bullish conditions, traders may ride the upward momentum with long positions. The general optimism in the crypto market often fuels confidence, not just to take bigger swings on high-risk projects, but to enter the market in the first place. Our recent survey supports this, finding that 31% of crypto holders say positive price movement was a key driver for crypto adoption.

Crypto holders are far more afraid of bears than bulls, and for good reason. Bears often signal the end of FOMO-fueled moon phases and the start of painful drops to multi-year lows. It’s a classic case of loss aversion, the idea that losses tend to hit us harder than equivalent gains feel good.

Similar to bull markets, the meaning of this term has to do with the way a bear attacks. Bears tend to swipe their claws downward, which perfectly symbolizes how they impact an investor's profit potential. 

From macroeconomic uncertainty to crypto-related issues, there are many reasons why digital assets fall into a bear spiral. However, there are three common signs to determine whether cryptocurrencies are in a bearish phase: 

• Decreasing prices: The hallmark feature of a bear market is that prices keep dropping. While cryptocurrencies may bounce temporarily, there isn't enough demand to sustain these mini-rallies.
• Market fear and uncertainty: People aren't excited about crypto during bear phases. Pessimistic social media posts are common, and traders tend to take a more conservative approach to portfolio management. 
• Lower trading and waning interest: Lower-than-average volume numbers reflect the cautious tone during bear markets. People aren't as willing to invest in digital assets, and there's often less mainstream news coverage during this phase. 

Only the most aggressive traders are willing to invest in speculative altcoins during bear markets. Instead, most traders respond to bearish periods by shifting to bigger projects like Bitcoin or transferring their holdings into fiat or stablecoins. 

Day traders tend to place tighter stop losses or use products like short perpetuals to hedge their positions and provide some downward protection.

Traders rely on a mix of price charts, technical indicators and macro context to determine whether crypto is in a bullish upswing or heading into bearish territory. Here's how to read the signals.

The obvious way to judge whether crypto is in a bullish or bearish phase is to check the price charts. When prices go up, the bulls are likely in charge. By contrast, a bear market is more likely if prices keep tumbling.

Beyond price data, traders have many other indicators to judge whether they're in a bullish vs. bearish market. Beyond simply reading the current market conditions, these tools sometimes help traders predict market movements to make more timely decisions.

Analyzing crypto market data falls into one of two fields: 

• Technical analysis (TA): More commonly used by day traders, technical analysis focuses on analyzing price charts and using indicators like moving average trendlines to forecast the market's direction. Some short-duration traders favor TA because it provides precise price levels for setting up positions. 
• Fundamental analysis (FA): Instead of staring at historical prices, fundamental analysts look into a crypto project's core features (e.g., the development team and use case) to determine its value proposition. FA also incorporates macroeconomic data to better gauge investor sentiment and the intrinsic value of a cryptocurrency.

In the context of bearish vs. bullish conditions, TA and FA provide two angles to assess and predict the latest sentiment. 

For example, if continue posting higher highs and higher lows, that's a strong technical pattern for bullish continuation. Fundamental features like a positive news flow and low unemployment data add even more bullishness to this scenario.

On the opposite extreme, when cryptocurrencies break below strong levels of resistance or trendlines, the chances of a bearish reversal increase. A few fundamental features that support a bearish thesis include muted institutional adoption or regulatory pressures.

Trading volume is another particularly relevant metric when analyzing these bullish vs. bearish scenarios. Since volume charts show the average trading activity on crypto exchanges, they give concrete info on how engaged market participants are relative to price performance.

Typically, rising volume supports trend continuation, while declining volume may indicate reversal or weakness. Traders carefully consider how these volume charts compare to historical averages and whether they correlate with price surges or slumps.  

Each crypto trader has personal preferences when studying market sentiment, but a holistic approach using multiple metrics tends to provide the most context and accuracy.

Just because cryptocurrency is a separate asset category doesn't mean it's unaffected by external factors. Sometimes, news of regulations or economic data is the catalyst moving markets in a bullish or bearish direction.

While there are many potential external influences, a few of the most common center around economics and mainstream adoption:

• Government regulations: National or international announcements on crypto may sway investor sentiment. For instance, transparent regulation could lead to bullish sentiment, but crackdowns fuel fear, uncertainty and doubt (FUD).
• Technological advancements: Hi-tech upgrades like scalability improvements or fintech integrations might improve crypto accessibility, which tends to boost optimism and attract investors.
• Security breaches and hacks: On the flipside, any signs of a technical malfunction in crypto could ramp up bearishness. High-profile exchange hacks or DeFi exploits are a few events that could erode trust and trigger panic selling. 
• Global economic events: Macroeconomic concerns like inflation and interest rate changes influence crypto's attractiveness as an alternative asset. Due to their novelty and volatility, cryptocurrencies are often considered "risk-on" assets, which translates to greater bearishness during times of economic uncertainty. 

External factors impact crypto prices, but predicting when and how these events move markets isn't easy. Even if there's a long-anticipated upgrade, it's hard to say how the market will respond beforehand. 

However, after a news story breaks, traders can use social media or on-chain analytics to assess the market's reaction. This data, paired with TA and FA, gives traders a better sense of whether the market is bullish or bearish.

It's only human to get emotional when the crypto market swings wildly. 

In bullish markets, the rush of euphoria can make traders believe even the riskiest memecoins could go to the moon. Conversely, bear despair makes it super tempting to hit the sell button. 

The key to mastering the market's strong winds is to exercise restraint. Rather than letting emotions guide you, it's best to have a game plan in place beforehand and let logic lead you. 

As a general rule of thumb, fear or greed aren't the best strategies for making trading decisions. Sticking with a plan and cultivating patience make it far easier to keep a level head in booming or busting markets.

One essential component of this balanced approach is risk management, which sets a clear take-profit and exit strategy on different positions to protect capital from extreme volatility. 

For example, a trader willing to risk 5% for a potential 10% gain on Ethereum could set a stop-loss 5% below and a take-profit order 10% above their entry price immediately after buying ETH. 

Crypto portfolio diversification is another common strategy for protecting against volatility while capturing potential gains. A well-diversified portfolio spreads investments across different assets to avoid the risk of concentrating capital on one underperformer.

Staying on top of the latest news and economic indicators helps traders anticipate sentiment shifts and potentially prepare ahead of the crowd.

For example, if a bull market appears to be ending, it might be wise to lock in profits before a drawdown. 

Bearish markets may provide a prime opportunity to research heavily discounted digital assets and use techniques like the dollar cost average (DCA) strategy to start building positions at lower levels.

Bullish and bearish markets present unique pitfalls, but many dangers boil down to following impulses rather than a plan. A few ways emotion-based decisions creep into bullish and bearish markets:

Rising markets can make traders feel invincible. But euphoria is just as dangerous as fear. Common bullish mistakes include:

• Overtrading: When prices climb, it's easy to overestimate your edge. This often leads to excessive trades, high fees, and risky overexposure.
• Realizing gains too early: Locking in profits too soon may leave long-term upside on the table—especially if it's driven by fear rather than strategy.
• FOMO and trend-chasing: Buying into hype, social media trends, or “moonshot” coins can lead to poor entries and costly bags.
• Failure to adapt strategies: Just because the market was bullish doesn’t mean it will stay that way. Many traders lose out by refusing to pivot when sentiment shifts.

Downtrends bring their own set of emotional traps. Fear can cause traders to freeze, panic, or overreact. Key bearish mistakes include:

• Trying to catch a falling knife: Jumping into a crashing asset without a clear reversal signal often compounds losses.
• Skipping stop-losses: Ignoring basic risk management tools—like stop-losses or alerts—can turn a manageable dip into a devastating loss.
• Panic selling: Knee-jerk sales at the bottom are often driven by emotion, not logic. Always verify that exits are based on your market thesis, not fear.
• Lack of diversification: Being all-in on a single asset or sector magnifies losses when the market turns against you.

Writing a detailed trading plan with clear entry and exit points is a straightforward way to avoid pitfalls in bullish and bearish markets. 

After establishing key levels and strategies, use automatic orders like stop-losses and take-profits at key price targets to remove emotions from the decision-making process.

Volatile markets can easily test a trader's patience and emotional control, but developing a cogent plan and disciplined mindset puts you on a proactive rather than reactive path.

Pre-written strategies may even prevent hasty sales and in a more favorable market. 

Ultimately, any strategy that helps avoid all-too-human emotional hang-ups serves crypto traders the best in bullish and bearish markets.

Figuring out whether the crypto market is in a bullish or bearish phase is foundational for understanding trading dynamics. By mastering the art of spotting bulls from bears, you're better equipped to interpret how others are behaving and adjust trading strategies.

While identifying bullish vs. bearish markets is foundational, there are many other ways to gauge and engage with the crypto market. For more strategies and guidance on reading the crypto market, check out .

We’re also here for you when you're ready to jump into crypto trading. Whether bull or bear season, Kraken gives you the technical analysis tools and trading options to set up your preferred strategies. 

Sign up for a Kraken account today and get started on your crypto journey.