What Are Bull And Bear Markets?

Though bull markets offer plenty of opportunities to make money and multiple existing investments, such situations do not last forever. The investor must know when to buy and sell for maximizing their gains and attempt to time the market. A bull market has no specific definition, but is a sustained period when prices are rising and generally expected to keep doing so. Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low.

bull vs bear market difference

A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs. This results in a downward trend that investors believe will continue; this belief, in turn, perpetuates the downward spiral. During a bear market, the economy slows down and unemployment rises as companies begin laying off workers. A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends.

Definition Of Bear Market

The condition of the market is determined by macroeconomic situations and large-scale factors. Investor sentiments also play an important forex trading role in determining the state of the markets. Not only that, but the average total return from a bull market period is 472%.

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bull vs bear market difference

The terms “bear” and “bull” are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market. During the bull market, any losses should be minor and temporary; an investor can typically actively and confidently invest in more equity with a higher probability of making a return.

A bear market can signal more unemployment and tougher economic times ahead. While 20% is the threshold, bear markets often plummet much deeper than that over a sustained period, not all at once. Though the market has a few occasional “relief rallies,” the general trend is downward. Eventually, investors begin to find stocks attractively priced and start buying, officially ending the bear market. The words “bear market” strike fear into the hearts of many investors.

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Supply and demand are the bread and butter of economics, so it’s good to know how they’re affected by bull and bear markets. In a bull market, there’s a huge demand for equities and securities; investors want to hitch a ride on all the growth companies are experiencing. This leads to a lower supply of stocks, which increases the price. Inflation plays a significant role in the state of the economy. In expanding economies, the demand for goods and services typically causes an increase in prices. Due, in large part, to demand outweighing supply, companies can typically charge more money for their products.

  • The trading industry has a very extensive glossary – a dictionary of terms and professional phrases.
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  • A bear market can vary in length but can last from a couple of weeks to an average of two years.
  • You can also consider geographically diversifying your holdings to benefit from bull markets occurring in other regions of the world.
  • When a bull market is happening there is general optimism among investors that prices will rise further, with the amount of buyers overwhelming the amount of sellers.

By proceeding you are agreeing to GorillaTrades’ terms of service and privacy policy. At the beginning of 2019, the world didn’t know a pandemic would take place in 2020. Similarly, most people didn’t think a financial crisis was coming in 2008 just a couple of years before. In order to have a perfect investment streak, you’d have to make so many perfect calls it would be impossible. No doubt you must have heard the saying about ‘using the right tool for the right job’.

Are There Any Rules To Defining Bull And Bear Markets?

A higher demand tends to drive stock prices and overall market value up. In a bear market, investors have less disposable income and less confidence in the market, so there is often a move toward selling investments. The more money that moves out of the market, the less demand for stocks and the further the market dips in value. A bull market can be broadly defined as a continuous period where prices rise — generally for months, quarters or years. Like the stock market, other asset classes can also have bull markets, such as commodities, real estate, or foreign currencies.

Thus, most of the profitability can be found in short selling or safer investments, such as fixed-income securities. In a bull market, the ideal thing for an investor to do is to take advantage of rising prices by buying stocks early in the trend and then selling them when they have reached their peak. 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. Whether or not there is going to be a bull market or a bear market can only be determined over a longer time period. Although a bull market or a bear market condition is marked by the direction of stock prices, there are some accompanying characteristics that investors should be aware of.

bull vs bear market difference

A bull market begins when investors feel that prices will start, then continue to rise; they tend to buy and hold stocks in the hope that they are right. The investors’ belief about stock prices influences the prices themselves in a self-fulfilling prophecy – where investors create market circumstances. But investors’ attitudes also have an effect on the stock market, creating a sort of feedback loop. When the market is in trouble, investors are often unwilling to put their money on the line, creating an atmosphere of doubt. This doubt ends up adding to the decrease in stock prices, as the decrease in demand sends shares’ value tumbling. Investors will direct their investments based on various factors that define the outlook through which the market is going through.

In both these situations, an indicator like the GDP plays a vital role in giving a bird’s eye view of how the economy performs based on the existing factors. BearishBearish market refers to an opinion where the stock market is likely to go down or correct shortly. It is predicted in consideration of events that are happening or are bound to happen which would drag down the prices of the stocks in the market.

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A contra market is one that tends to move against the trend of the broad market or has a low or negative correlation to the broader market. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Investopedia does not include all offers available in the marketplace.

Market timing is notoriously difficult, and you never know when the market is going to hit its bottom. Think of a bear with its nose pointed down and claws scratching down. Fidelity mutual funds are typically affordable, professionally managed and designed to meet different investment goals. Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site .

Are mandatory fees charged by the government, which help fund vital services. The S&P 500 more than doubled as deregulation led to mergers, acquisitions, and flurries of market activity powering corporate profits. Though one with a pessimistic opinion is called someone with a ‘bearish outlook,’ many anticipate such a situation as temporary and indications of the revival stage being around the corner. Create an investment plan and stick to it through ups and downs. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Forbes Advisor adheres to strict editorial integrity standards.

What’s The Difference Between Bull And Bear Markets?

The term bear market most likely came from both parable and practice. It generally relates to the trade of bear skins during the 18th century. During this era fur traders would, on occasion, sell the skin of a bear which they had not caught yet. They did this as an early form of short selling, Venture fund trading in a commodity they did not own in the hopes that the market price for that commodity would dip. When the time came to deliver on the bearskin the trader would, theoretically, go out and buy one for less than the original sale price and make a profit off the transaction.

Bull Market Vs Bear Market Infographics

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What Is A Bull Market?

David Hirshleifer sees in the trend phenomenon a path starting with under-reaction and ending in overreaction by investors / traders. Ideally, investors would wish to use market timing to buy low and sell high, but they may end up buying high and selling low. Contrarian investors and traders attempt to “fade” the investors’ actions .

Author: Anzél Killian