The world of investing has been rife for a couple of years now and the terminology that has been created around it is complete jargon to most. If you have just started out investing, there are two phrases that you should learn off the bat. The bull run and the bear run. Whilst both terms are used to describe the performance of a market, they are completely different and can impact your decision-making. So in this article, we will go through what is a bull and bear market.
What is a bull and bear market?
When talking about the performance of markets, people wonder what is a bull and bear market. These terms describe how markets are appreciating or depreciating in value. For people who have not heard of these phrases, this part is for you.
What is the difference between a bull and bear market?
Knowing what is the difference between a bull and bear market is easy to understand. A bull market is a market that is ascending and on the rise. This shows that the conditions of the economy are favourable. A bear market exists in an economy where it is on a downward spiral with most stocks decreasing in value.
A bull market is represented by a continued increase in prices. For example, the relation to equity markets. A bull market signifies that there is a rise in a company's share prices. When this happens this usually also shows the country's economy is strong and also employment is high so investors often believe the uptrend will last a while.
So what is the difference between a bull and bear market you ask? Well, the difference is that a bear market represents an economy that is on the decline. It is important to understand that a bear market is only a bear market when the market has fallen by at least 20% from recent highs. When a bear market is apparent, share prices, cryptocurrency prices and other assets all drop continuously. This then results in a downward spiral where investors believe this will continue. This in turn speeds up the spiral of the economy which in turn results in high unemployment and people saving their money.
What is the characteristic of a bull and bear market?
Yes, a bull and bear market are descriptors of the way the economy is moving, but there are also characteristics that investors need to understand.
Supply and demand for securities
When a bull market is apparent, there becomes a high demand for securities but also a weak supply of them. So this means that investors want to buy them, but nobody wants to sell them which in turn increases the share prices making it even harder to obtain these securities. When it comes to a bear market, this completely changes where people are wanting to sell them, but nobody wants to buy them.
Change in economic activity
Many businesses' stocks are being traded on the exchange which makes them part of the greater economy. This makes it easy to understand that the stock market and the economy are strongly linked.
What is a bull and bear market change in economic activity?
A bear market happens when a weak economy is apparent. Many businesses struggle to make large profits and struggle to stay afloat. This happens because consumers are watching their money and are more reluctant to spend their money. The decline in these profits corresponds directly to market stocks. In a bull market the opposite, people have more money to spend and are less reluctant to send their money. This in turn drives the economy and strengthens it.
What is the method of trading in a bull and bear market?
So now you know what is a bull and bear market, its now time to understand what to do in each market. In a bull market, it is pretty easy to take advantage of the rising prices of the stocks by purchasing early on. This is why it is important to follow groups as this will help to determine when to invest. Once these stocks have reached their peak, sell them. During the bull market, you may occur some losses, but should only be minor, and you will recover fast. This makes it easier for investors to invest more equity without having to worry about not making a good return.
In a bear market, things get more complicated as the chances of big losses are much more likely due to the prices continuously dropping and depleting and the end has no real sight. Even when people think they can see the upturn, chances are when investing in a bear market you will make a loss before anything alters the direction. So when people are trying to invest in this market, they are after securities which as discussed earlier, everyone is hesitant in selling.
Conclusion
Both bull and bear markets have a significant influence on your investments and your profits, for this reason, it is essential for you to do your research and see how the market is before investing.