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LearnAcademyInvestment fundamentals: Strategies in practiceLesson 5: Investment Strategies for Bull Markets

Lesson 5: Investment Strategies for Bull Markets

After completing this lesson, you will be able to:
Explain what a bull market is.
Identify the most common mistake investors make in bull markets.
Understand the benefit of investing gradually.
Explain the role of an exit strategy.
Understand how a diversified portfolio can support growth while minimizing risk.

Welcome to the fifth lesson in Kriptomat’s guide to fundamental investment strategies. In this lesson, we’ll focus on investment strategies for bull markets.

A bull market has a specific definition

  • Economists define a bull market as a gain of 20% or more that is widespread throughout a market.
  • Individual stocks, cryptocurrencies, and other assets can have bull runs when they rise in value, even if there is no widespread bull market.
  • In the stock market, bull markets tend to last for years. Bull and bear cycles happen more quickly in the crypto world, where a bull market may last for just weeks or months.

The bull market’s rising prices can lead to a false sense of security. That leads investors to make bull-market mistakes.

  • Entering the market late is one example. In a bull market, it’s best to invest as early as possible. The earlier you invest in the market, the more of the market’s rise you will enjoy. If you wait to buy at the market’s peak, there’s no place to go but down.
  • “Recency bias” can lead to poor investments. When investors see a particular crypto rise in value 10% or more five days in a row, they rush to buy. But there is no guarantee that the price will continue to rise. It’s better to commit early, make a well-considered investment, and watch its value rise as the bull market continues.
  • Some investors grow impatient with cost averaging and other risk-minimization strategies during bull markets. They discontinue these financial plans and make big purchases as if they are certain the market will continue rising. But every bull market comes to an end eventually. It’s important to keep long-term investments in place and explore the unique opportunities of a bull market with separate funds.
  • Some tokens lack compelling use cases but their prices rise anyway during a bull market. A bull market can mask weaknesses in a currency’s business model. As always, do your homework and focus your investments on cryptos with unique business benefits. Our lesson on fundamental analysis can help you get started.

Financial experts recommend sticking to a slow-and-steady investing strategy that minimizes risk

  • Portfolio diversification is particularly important during periods of market growth because some segments enjoy more growth than others – and some segments may even have declining prices.
  • Cost averaging remains a highly recommended strategy during bull markets. It effectively reduces the average value of the crypto in your portfolio so you’ll enjoy bigger profits when you achieve your investing target and sell the crypto.
  • Some advisors recommend reinvestment. The idea is that you buy crypto, sell it at a profit, and use the proceeds to reinvest at a higher price point. Profits let you stay in the market with “free” crypto – funds you didn’t have at the beginning of the bull market.
  • Experts say it’s important to stay in the market instead of selling off assets to pocket profits. Over time, long-term strategies have been less risky and more profitable.

If you have extra money to invest, a bull market can present numerous opportunities

  • In a bull market’s early phases, new cryptos tend to be undervalued. Experts say these tokens could see dramatic growth in the favorable environment of a bull market.
  • A look at price histories may reveal cryptos that have outperformed the market during previous bull runs, rising a few percentage points more than the market average. Some tokens consistently outperform the market, and they’re worth a look during a bull run.
  • New coins with low market capitalization have trouble attracting investors when the market is flat, but in a bull market they may have a chance to prove their worth.

Experts agree that it’s important to stick to an exit strategy

  • When you made your financial plan, you defined the conditions for withdrawing profits from your investments. This is your exit strategy.
  • For example, you might withdraw funds when you have accumulated enough to make the down payment on a new house or to take a once-in-a-lifetime vacation.
  • Your exit strategy could be related to time, not portfolio value. For example, you might time a gradual sell-off to coincide with your retirement date.
  • It’s tempting to sell crypto during a bull market to enjoy the profits, but if you don’t have a plan for the profits, you may find that they evaporate pretty quickly.

So – what did we learn?

  • Bull markets are widespread price gains of 20% or more that last at least two months.
  • Buying crypto near the end of the bull run can minimize your profits or even lead to losses.
  • Experts recommend sticking to your plan regarding selling assets and leaving the market.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What is a bull market?

A highly volatile market in which prices buck up and down like a bull at a rodeo.
A market with multiple risks – symbolized by the bull’s two horns.
A market with widespread rising prices of 20% or more.
A market that is crowded with new investment opportunities.

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Which of the following is NOT a common bull-market investing mistake?

Paying the full asking price for crypto coins and tokens.
Entering the market late.
Making transactions based on recency bias.
Discontinuing low-risk long-term investments.

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Which of the following is NOT a recommended strategy during a bull market?

Portfolio diversification.
Cost averaging.
Dividend investing.

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What is an exit strategy?

A plan for the distribution of assets after the investor’s death.
A plan for gradually leaving the investment market.
A plan specifying when to begin withdrawing from your portfolio to meet a defined long-term goal.
A plan for gradually replacing your portfolio’s poor performers with cryptos that yield a higher return.

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How does portfolio diversification contribute to investment strategies for bull markets?

Diversification minimizes risk while making it more likely you will own cryptos that enjoy the highest rise during the bull market.
Diversification frees the investor up to sell off current holdings and buy top-performing cryptos to replace them.
Diversification minimizes tax liability in portfolios with large balances.
Diversification ensures that your portfolio contains cryptos from a balanced selection of races, ethnicities, genders, and nationalities.

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