While the terms are relatively simple to understand, the impact either a bull or bear market can have on your portfolio and wealth is undeniable. Both animals are known for their incredible and unpredictable strength, so the image that each evokes in regards to stock market volatility certainly rings true. The terms “bear” and “bull” are often used to describe general actions and attitudes, or sentiment, either of an individual asset or the market as a whole.

• He joined Ventura Securities Limited in 2005 as head of mutual fund products distribution and has been Director at the company since 2008.
• 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.
• Stock market movement cannot be predicted accurately, in the short-term, just like the event of seeing a head or tail when a coin is tossed.
• Our partners cannot pay us to guarantee favorable reviews of their products or services.
• A bear market may be an indicator of normal fluctuations in the stock market, or it may signal that the economy is headed for a more serious downturn.

A bear market occurs when prices are falling, or when they’re expected to decrease. Like bull market, the term usually refers to the stock market, but it can also be used in the context of real estate, currencies, and other commodities. There’s no formal metric to measure when a bear market is happening, but a 20% decline in prices is sometimes used as the threshold.

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At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. Even if you invest in hoping for recovery, it will probably be some time before anything changes. A person intends to increase their savings because they want to protect their capital until the economy recovers.

Just like in sailing, you usually don’t want to be going against the current when trading. An investor may also turn to defensive stocks, whose performance is only minimally impacted by changing https://www.bigshotrading.info/blog/bull-vs-bear-market-all-differences/ trends in the market. Therefore, defensive stocks are stable in both economic gloom and boom cycles. These are industries such as utilities, which are often owned by the government.

What Is a Bear Market?

By and large, investors look for a 20% gain from a low point and steady gains over at least a six-month period to understand when a bear market has ended. While bear markets can be scary, they are a natural part of the economic cycle and often lead to even stronger market returns. A diversified portfolio constructed for your financial goals can prepare you to confidently stay the course and weather any kind of market. Predicting markets for investment purposes is a tough call for anyone, including market veterans. So, to make the most of both phases, investors can invest gradually in a calibrated way that does not lead them to suffer steep losses.

During a bear market, prices are falling and investors are pessimistic about the future. Bear markets can last for months or even years, resulting in a negative impact on investors and the economy. Historically, in terms of bulls vs bears stocks, equity market benchmark indices tend to spend more time rising than falling. This is linked to a psychological element of trading and loss aversion, where during a market crash traders tend to panic and sell-off quickly.

How can you trade bullish and bearish markets?

Investors use the terms “bearish” or “bullish” as a quick way to describe their market sentiment regarding specific securities or financial markets. The key determinant of whether the market is bull or bear is not just the market’s knee-jerk reaction to a particular event, but how it’s performing over the long term. Small movements only represent a short-term trend or a market correction.

In these cases, the old saying is that every rally looks like a selling opportunity. Stock market fluctuations are common, as so-called bull markets don’t run forever and so-called bear markets eventually withdraw their claws. Over time the name “bearskin jobber” was shortened to just “bear,” and the definition was expanded to include the financial markets, which used “bear” https://www.bigshotrading.info/ to describe a speculator selling stock. One of the earliest references of the term “bear” used to describe a marketplace transaction came in 1709 from Richard Steele, publisher of the British literary and society journal, The Tatler. In an essay, Steele defines a “bear” as an individual who places a real value on an imaginary object and thus is said to be “selling a bear.”

How to invest in bull and bear market phases

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. More specifically, the terms “bullish” and “bearish” describe the state of a market in relation to its current direction. Specifically, if it is gaining value, or moving up (uptrend), or losing value because its movement is going down or declining in value (downtrend). As the price drops, so does the market capitalization of crypto assets.