Trading in any Financial market can be a dicey affair. In the cryptocurrency market, the risk is all the more pronounced due to heightened volatility owing to its decentralized nature and lack of regulatory authority. However, greater risk can also yield greater reward.
Speculative traders with limited knowledge of market behavior tend to incur untold losses. Smart trading techniques can greatly mitigate losses. To be a smart trader, it is first required to understand various market trends in the short, medium and long term and hedge one's bets accordingly.
Historically, the three major market trends recognized in technical market analysis are Primary, Secondary and Secular trends. Ostensibly, study of market trends seems like a economic research subject. However, given the influence of factors such as collective psychology, political and socio-cultural undercurrents which impact upon trends, it is very much a cross-disciplinary field of study. Recognizing the factors in play greatly helps to understand the different trends.
Primary Market Trend
The length of a primary market trend in the conventional market can last upto a year or more with a broad support throughout the market.
A primary bull market is a sustained period of increasing value. The beginning of a primary bull market is known as accumulation phase. The most perceptive of investors enter the market at this point. The phase usually begins on the back of a downtrend, known as market bottom, meaning the market offers the most attractive value for investors.
A telltale indicator for such a trend is the market, upon a quick upturn, starts to consolidate by slowly dissipating the pressure to sell and establishing a higher support level before embarking on a new upward trend.
Bitcoin’s surge to established prices of $6-7k in 2016 and 2017 is a great example of a primary bull market. After crashing to as low as $200 in 2015, Bitcoin slowly but surely consolidated a support level around $600 in 2016 before soaring all the way to its present value.
A primary bear market is a period of decreasing value. The first phase in a primary bear market is known as the distribution phase. This occurs in an overbought market where smart investors are sensing an inflationary tendency and selling their assets. Distribution phase begins on the back of an uptrend, known as market top.
As price flattens out at the top, pressure to sell intensifies. In the latter stages of the market, as price begins to fall, more and more investors sense weakness of support and exit the market resulting in a more rapid decline. The last phase of the primary bear market tends to be filled with market panic and can lead to very large sell-offs in a very short period of time.
A classic example of the primary bear market is the great depression of the 1930s subsequent to the wall street crash of 1929. The Dow Jones industrial average’s market cap crashed by 89% from 386 to 40 within 2 years.
Secondary Market Trend
Secondary market trends are correctional movements of sudden rallies and directional turnarounds within the primary market trend. A primary upward trend is composed of brief, secondary downward trends and likewise, a primary downward trend is composed of brief, secondary upward trends. After establishing support levels, the market continues to move in the direction of the primary trend.
Secondary trends can last from two weeks upto 3 months. Learning how to perceive a secondary trend is important to avoid selling or buying against market movement. Investors capable of recognizing secondary trends dismiss the momentary reversal of trend and hold their ground while the uninitiated tend to panic buy/sell.
An example would be Ethereum’s downward trend from June right through to the end of July before ralling back upward not only to previous levels but managing to establish an even higher support level than before.
Secular Market Trend
A secular trend is a long-term trend lasting more than 5 years. Markets which establish a secular trend are seen to be time-tested, blue-chip investment options. Such a trend is caused by underlying market forces that could be in place for decades. These markets are driven by large-scale, worldwide events with a lasting impact.
A secular bull market may have periods of downturn without reversing the overlying trend of upward progress in value, while a secular bear market could have periods of upturn without reversing the long-term downward trend.
Economists at large agree that U.S. equities were in a secular bull market from about 1980 to 2000, even though the stock market crash of 1987(Black Monday) occurred within the same time period. Collapse of the dot-com bubble and 9/11 attacks are seen to have ended the trend.
Is Bitcoin and cryptocurrency bull market a secular trend? Or is this just a blockchain bubble, a la dot-com bubble? The answer will be largely determined by the extent to which we are able to enlighten and influence a paradigm shift in the broader community saddled with hyperinflationary fiat economy of blockchain’s potential as the cornerstone for all economic posterity.