Stock market investors often heard about bull and bear market from the business news channel, from the stock advisor or from analysts and most of you’re thinking what is it?
So here in this article I am going to write about the bull market and the bear market and how they are different from one another.
Table of Contents
What Is A Bull Market?
A bull market is a phase of the financial market when stocks and benchmark indexes as a whole perform positively and grow rapidly for a certain period of time. It represents the positive sentiment of the stock market.
There are several factors that contribute to a bull market, but the most important factors are higher economic growth, higher employment rate, sufficient liquidity, and controlled inflation. A bull market lasts for a few years.
What Is A Bear Market?
Bear Market is also a phase of the financial market, when stocks and benchmark index fall rapidly and more than 20% in a year. In other words, the bear market refers to the negative sentiment of the stock market.
There are several causes for a bear market, the important ones are lower economic growth, higher inflation, higher unemployment rate, lower liquidity in the market. A bear market lasts for several weeks to years depending upon the economic cycle.
Why It is Called As Bull Market or Bear Market?
The term bull and bear are derived from their attacking style towards their opponents. Both of their actions are metaphorically used by traders in reference to the market condition. When the market moves upward it is called a bull market, because a bull thrust its horn up to attack its enemy.
Likewise when the market goes downward, it is called a bear market, because a bear swipes down its opponent and takes them down.
Investment Strategy For Bull And Bear Markets
Both the bull and bear markets can be profitable for investors if they use the opportunity well. To grab the opportunity, first you should able to recognize the market condition and the reversal in the market’s overall trend.
Trading Strategy For Bull Market
When all economic parameters are performing well and global markets are also good, then the overall stock market will perform well, and its a bull market signal. So in a bull market you can hold stocks from high growth sectors, index, and other market-related securities and add more to your investments.
Trading Strategy For Bear Market
Identifying a bear market is quite hard, but there are several economic indicators that signal the bear market earlier. When you see the economic recession for quite a few quarters, increase in interest rates, increase in bond yield, that’s quite some indicator for a bear market,
During a bear market, the first thing you should do is ext from all your investments or at-least 75 % of your market-related investments as early as possible. Then invest that money in the debt market or government securities. After the bottom formation in the market or in the benchmark index, you should invest in the market partially as the bear market only lasts for the short-term.
Those who invest during a bear market have a higher chance to get a better return compared to others.
Bottom Line
It is very important to remember, that a bull market is characterized by a positive growth which tends to insinuate greed and emotions. A bear market is generally associated with negative growth and recession, which creates fear among investors.
As you study the market we shout act opposite at both market’s peak as both the market scenario does not last long. Most of the institutional investor does that, they feed on general investor’s fear and emotions. So do not fear the bull and bear market, every kind of market has its own opportunity.
Here is a book named Economics: Principles in Action, You can read on google books.
