When the fall dominates the markets: understanding bearish trends

Definition and characteristics of the bearish market

A bear market represents one of the most challenging dynamics for any investor. It is a prolonged period during which asset prices experience significant declines, reflecting widespread pessimism in the market. Although this concept is often associated with cryptocurrencies, its application is universal: from traditional stock indices to bond markets, real estate, and commodities.

The characteristic volatility of the bearish market varies significantly depending on the type of asset. In conventional markets like Wall Street, analysts consider a 20% drop in price value over a span of 60 days to mark the beginning of a bearish trend. However, in the crypto asset ecosystem, the movements are much more abrupt: drops of 85% are practically common given the lower market capitalization of crypto compared to traditional markets.

Historical Data: Lessons from the Past

The numbers speak for themselves when we examine the financial history. Between 1929 and 2014, the U.S. market experienced exactly 25 bull markets and 25 bajista markets. The impact was dramatic: while the average loss during a bajista market reached -35%, the average gain in a bull market was approximately +104%. These data illustrate a fundamental truth: the magnitude of the rises tends to be more pronounced than that of the falls.

Psychology of the bearish market

What triggers a bearish market? The answer lies in investor confidence. When doubts about market performance emerge and indices begin to show weakness, pessimism arises. This negative sentiment generates a chain reaction: investors start selling their positions in an attempt to limit losses, which further intensifies the downward pressures. In extreme scenarios, this dynamic culminates in periods of massive capitulation.

Tools to identify emerging bearish markets

Although a 20% drop is relatively obvious, experienced traders do not wait until that point. They use a arsenal of technical indicators to detect early signals of an imminent bearish trend:

The moving averages reveal changes in price momentum. The MACD (Moving Average Convergence/Divergence) identifies changes in the direction of momentum. The RSI (Relative Strength Index) measures the magnitude of recent price changes. The OBV (On-Balance Volume) analyzes how the volume of transactions supports price movements.

The contrast: bullish market versus bearish market

The opposite of a bearish market is a bullish market, a period where optimism reigns. Rising prices create a multiplier effect: as confidence grows, investors invest more aggressively, fueling new price increases.

These alternating cycles are not accidental. Market momentum explains why trends perpetuate: in bullish periods, sustained buying keeps prices rising; in bearish markets, continuous selling reinforces the decline. Understanding this mechanics is essential for intelligently navigating any asset market.