Bear Market Vs Bull Market

The most commonly accepted reasons are simply nature and human history. The Dow Jones Industrial Average , also referred to as “Dow Jones” or “the Dow”, is one of the most widely-recognized stock market indices. When the stock goes up again, is great because that’s when we start to collect the profit. Bear markets are closely linked with economic recessions and depressions. Recessions are formally declared when GDP decreases for two consecutive quarters, while depressions occur when GDP decreases by 10% or more and the downturn lasts for at least two years.

In a bull market, the increase in stock market prices boosts investor confidence, which causes investors to put their money in the market in the hope of obtaining a profit. The stock market can be bearish even while bull markets are occurring in other asset classes and vice versa. If the stock market is bullish and you’re concerned about price inflation, then allocating a portion of your portfolio to gold or real estate may be a smart choice. If the stock market Futures exchange is bearish, then you can consider increasing your portfolio’s allocation to bonds or even converting a portion of your portfolio into cash. You can also consider geographically diversifying your holdings to benefit from bull markets occurring in other regions of the world. Both bear and bull markets will have a large influence on your investments, so it’s a good idea to take some time to determine what the market is doing when making an investment decision.

Invest In Sectors That Perform Well In Recessions

The term ‘bull’ originally meant a speculative purchase in the expectation that stock prices would rise; the term was later applied to the person making such purchases. The usual cause of a bear market is investor fear or uncertainty, but there are a multitude of possible causes. During the bull market, any losses Famous traders should be minor and temporary; an investor can typically actively and confidently invest in more equity with a higher probability of making a return. Because the businesses whose stocks are trading on the exchanges are participants in the greater economy, the stock market and the economy are strongly linked.

Below, we’ll explore several prominent strategies investors utilize during bull market periods. However, because it is difficult to assess the state of the market as it exists currently, these strategies involve at least some degree of risk as well. One way is to sell all your shares and buy short-term government bonds. In other words, get rid of your investments in securities and find safer options. Or GDP can be used to work out whether it’s a bull or bear market. When GDP figures are rising, this indicates that the economy is growing because consumers are spending.

It might be said that the prevailing sentiment of investors who expect a bear market is fear that a coming downturn will wipe out wealth. The term bull originally referred to speculative purchases rather than general optimism about prices and trend lines. When the term first came into use it referred to when someone grabbed a stock hoping it would jump up. Later, as years went on, the term evolved to refer to the individual making that investment.

Secondary Trends

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bull vs bear definition

In the end, there is no way to ensure gains in the investment market. All you can do is maintain strong investment tendencies and make prudent decisions. In addition, try to avoid trading on emotion, as that can lead you down a dangerous path.

Evidence Of The Bandwagon Effect In The Stock Market

They tend to happen in line with strong gross domestic product and a drop in unemployment and will often coincide with a rise in corporate profits. Investor confidence will also tend to climb throughout a bull market period. The overall demand for stocks will be positive, along with the overall tone of the market. In addition, there will be a general increase in the amount of IPO activity during bull markets. There’s more risk involved with investing in a bear market, but along with this risk comes potential reward. Short-term strategies are more useful when the market is volatile.

bull vs bear definition

Or the Fed may increase rates to make borrowing money more expensive, which can slow down the economy. The longest bull market lasted from 2009 to 2020 and resulted in stock growth of more than 400%. A market indicator is a quantitative tool that is used by traders to interpret financial data in order to forecast stock market movements.

Bear Definition

Similarly, most people didn’t think a financial crisis was coming in 2008 just a couple of years before. First, you’d have to invest at the absolute low of a particular investment. Then, you’d have to sell at the very peak of that investment’s value.

What Are Small Cap Value Stocks?

Generally speaking, a bull market is defined as a 20% rise from the lows reached in a bear market, but the definition isn’t as strict as that of a bear market. Investors typically mark the start of a bull market at the market bottom of a bear market. For example, the S&P 500 reached the lows of the financial crisis in March 2009, so that is considered the start of the bull market that lasted until early 2020.

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The reality is that once bull and bear markets become clear to investors, it’s probably too late to take advantage of the change. As a trader, you may agree with this sentiment and become bullish bull vs bear market difference on stocks with the anticipation of a specific company’s shares rising or a stock index going up. A bull market is a sustained 20%(+) increase in stock prices from a recent market low.

Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low. A bull market can last for years as it did with stocks starting from the lows of the financial crisis in 2009 until the global pandemic hit in March 2020. However, it’s often wise to buy low and sell high during a bull market, and to be cautious about investing in a bear market, as the risk level is much higher.

Market Phases

He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. There are also psychological factors, such as our herd instinct. For example, if some investors see many others selling, they may do so too. Then others hear that the first and second group of investors were selling, and do the same, etc. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Author: Annie Nova