As you embark upon your trading journey, it’s likely that you will come across the terms ‘bull market’ and ‘bear market.’ So what do they mean? Both terms are used to describe how the stock market is performing in general – that is, whether the market has bullish or bearish sentiments. It is critical for a trader to understand bullish or bearish market trends in order to navigate the different market conditions and realize their varied effects on investments.
Let’s take a look at the meaning of a bull and bear market, the basic differences between both, and how each market type could affect your investment strategy.
What is a Bull Market?
A bull typically indicates that the stock market is performing well and the buyers are optimistic about a rise in the prices of the shares. To be specific, a bull market as a period of time when there is a market rise of 20% or more. When the stock market is ‘bullish’, it’s anticipated that the GDP is rising and positive results should continue for weeks, months, or even years. Though there is no set way of identifying a bull market, the typical indicators are rising asset classes of all types, like stocks, bonds, and real estate, an increase in the country’s economic growth, and low unemployment levels.
What is a Bear Market?
A bear market, on the other hand, is the complete opposite of a bull market. The sentiment of such a market is pessimistic about the market and bear markets are usually indicated by a stagnating or falling economy and low confidence in the economy. Instead of a rising tide, the market falls by about 20% over a two-month period. During a bear market, the economy and GDP begin to fall and unemployment rises. Studies show that an average bear market lasts for only 1.4 years.
How do Bull and Bear Markets affect your investment strategy?
If you are willing to invest in the stock market, then the status of the market as a bull or a bear market could impact your investment strategy. Though it’s important for you to identify a bull or bear market when it occurs to decide your market strategy, not all long movements in the market can be characterized as bull or bear. Sometimes, a market may go through a period of stagnation as it tries to find direction. You should invest in both markets while keeping in mind the things you need to take the advantage of in bullish and bearish markets.
In a bull market, the best approach for an investor is to take advantage of rising prices by buying stocks early in the trend and then selling them once they have reached their highs.
In a bear market, because share prices are continually losing value, it’s wise to analyze one’s investment portfolio and make necessary adjustments, like investing in safe instruments such as bonds, mutual funds, etc. It is also a strategy to buy stocks of large, stable companies due to the bull market presenting a low-cost buying opportunity and waiting for these stocks to recover and get back on their growth track.
The Bottom Line
Whether your goal is to create a short-term or a long-term investment http://www.slaterpharmacy.com portfolio, both bear and bull markets will have an impact on your investment strategy and returns, so it’s necessary to research and identify the market condition in order to make a wise investment decision. You must keep your risk tolerance in mind and stick to your investment strategy in both bull and bear markets for a positive return.
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