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Whether we are trading crypto assets or trying to understand how the global crypto market works, it is normal to encounter loaded words like capitulation, consolidation and accumulation. In todayâ€™s article, let us take a look at these three different terms that might mean the same thing but have entirely different connotations.
Market Capitulation in crypto assets is defined as a period when there is a dramatic increase in the selling pressure, investors attempt to sell their crypto holdings in the market, signifying a mass surrender by the bulls. This leads to the market prices dropping suddenly, also marking the end of a decline or a downward trend. This is because the investors who had withheld their assets during the panic are unlikely to do so afterward.
A capitulation phase typically occurs after the market witnesses significant downturns in crypto asset prices. However, it may be possible here that the downturn takes place despite investors remaining bullish.
The timeline of a capitulation phase can be as follows:
- Heavy trading volume accompanied by significant declines
- The investors lacking conviction exit from the market
- More risk-tolerant investors are replaced who are willing to buy at the end of the prolonged decline followed by a dramatic drop in prices.
Consolidation occurs when a crypto asset oscillates between trading levels in a well-defined pattern. Consolidation occurs when there is indecisiveness in the market. The phase ends when the crypto assetâ€™s price finally moves below or above the trading pattern. There can be several reasons behind the breaking of a consolidation pattern, such as news or development that directly impacts the crypto asset or a trend reversal in the overall market.
A period of consolidation can last for days, weeks, or months. To trade during a consolidation phase, a trader looks for the support and resistance levels and then uses these to make buy and sell decisions. During a consolidation phase, the price moves in a zig-zag way between the support and resistance levels. A breakout above the consolidation zone, or resistance level, is considered a signal that the prices will climb up, and a breakout below the consolidation zone, or support level, is considered a signal that the prices will fall lower. The trader enters the market in the former case and opts for an exit position in the latter.
Accumulation happens when there is a general increase in the buying activities for a particular crypto asset. During accumulation, traders increase the size of their position in multiple transactions as they are accumulating the crypto asset of their choice.
However, the time period of this accumulation phase may spread over a large period of time. This is because a trader may want to get a better average price on their holdings or may be trying to lower the impact of the market on their portfolio. Bulk buying in the market often results in prices shooting up, and traders prefer to spread their purchases over a considerable period of time to gather information and make covert decisions.
While three terms are starkly contrasted from one another, we may often get confused. A good revision comes in handy when we want to level up our crypto glossary. Stay tuned for more.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.