Investors and traders are people with emotions, fears, and biases. To overcome the uncertainty of every aspect of daily life, they need things that give them a feeling of safety. Bear market, Bull market, Or?
Assigning a specific “label” to events, objects, or other people’s behavior helps everyone categorize what happens around us to fit our mind schemes.
When trading, often happens the same process. It has been weeks now that traders struggle to answer the question, are we in a bear market?
Why is that so important to assign a label to current market conditions when you need to look at the price?
Interestingly, in 2019, the price of Bitcoin increased by 200%, but no one recalls a Bull market in 2021, even if such performances in any other asset class may have been well labeled so. That’s likely because crypto price moves have a different scale.
Fibonacci retracements are a valuable way to gauge the magnitude of a price move. Despite the 200% surge, Bitcoin only retraced 61% of the drowdown experienced during the Bear market. Applying the same logic to the current price action, Bitcoin has found support precisely around the same 61% level calculated from the bottom in September 2020.
Should the current support hold, the label “Bear market” will be archived quickly, again.