Bull Vs Bear Market- A Stock Market Concept Explainer
Created on 18 Jun 2022
Wraps up in 6 Min
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Updated on 11 Sep 2022
No matter whether you are bullish or bearish but if you are a trader then here is an update for you- 90% intraday traders lose money in the stock market. Thus, we recommend that you should stick to long term investing. :p
Is it still a bull market, or it has become bearish? Is it bears vs bulls? And why, exactly, do we use such terminology to characterise stock markets?
According to common belief, the terms are derived from the animals' assault techniques. A bear stock market attacks by sweeping its paws down, whereas a bull strikes by shoving its horns up. Because markets go up, down, and sideways, these can be compared to market direction.
What exactly is a bear market?
A bear market is defined as one that has lost more than 20% of its value in less than two months, going through a period of wide market pessimism. This drop is frequently caused by investor concerns about something like a country's economic prospects. A bear stock market can provide traders with a solid entry point as well as several short-selling chances.
The market is inflated: The price-earnings (PE) ratio is one approach to predict what a stock index or economic entity will do in the future. This metric analyses the value of a share (or index) to its profits.
For example, a PE ratio of 25 implies that the prevalent market price is 25 times more than each share’s piece in the company’s earnings.
PE ratios tend to climb when investors get overconfident in the final phases of a bull market, which could also lead to an overvalued market and raise the danger of a crash.
Bond yields are falling: Bond and stock markets have historically moved in opposing directions. Stocks are considered higher-risk investments, whereas bonds are considered "safe haven" assets, at least in nations like the United States and Australia.
Investors migrate money from bonds to equities when things seem to be going well, and they flood back into bonds when things start to go wrong. As a result, higher bond prices (and hence lower yields) indicate that investors are concerned about the economic or market prospects.
However, central bank stimulus measures throughout the world have muddled this dynamic during the last decade, pushing bond rates to historic lows while equities have risen.
What is a market that is bullish?
The bottom of a bear stock market is generally only discernible after the fact – there's no formal declaration first from ASX or Standards and Poor's that everything will be OK from here on out.
Rising bond rates, low PE ratios, and good political or economic news are all possible indicators a bull market has begun, however, in due time, these aspects will be reversed too.
Of course, picking the precise bottom of the share marketplace is nearly difficult, but recognising a market's shift early-on may result in huge rewards.
Consider Macquarie Group, which fell to $15.49 per stock in March 2009 before rising more than thrice to $50 per share in September. By the end of 2019, the stock was trading at $130 per share.
Of course, investment in the wrong company or timing a turnaround incorrectly can result in big losses. As usual, do your homework and be cognizant of your personal financial circumstances.
Bear vs Bull
Bear vs bull markets are defined by large increases or decreases in price and market capitalization. The traditional characterization of bull and bear markets dates back to how the animals strike. Bulls with their horns charge forward. Bears use their claws to rake the ground.
In a bullish trend, stock prices climb gradually as investors' confidence grows. This optimism boosts demand while keeping supply low. Price activity in a bullish trend is typically steady, with few big whips and stalls. It can go on for years in this manner, but markets cannot remain positive indefinitely.
The demand-supply balance will inevitably shift, resulting in price adjustments. They aren't always bad enough to qualify as a bear market.
Although it's difficult to predict when a bull stock market will end and a bear market will begin, it doesn't imply you should put all your wealth under your mattress.
Keep in mind that even in the worst-case scenario, the stock market may only lose 100 percent of the total of its value. A bull market, on either hand, has no ceiling. Stocks have infinite growth potential.
Keeping this in mind, experts often advise investing in a method that makes you feel at ease—this way, you won't be tempted to abandon your strategy if the market takes a sharp turn. Risk tolerance refers to how comfortable you are with market volatility. Consider it a measure of how much uncertainty you can tolerate.
How to Benefit from a Bull Market
Investors who want to profit from a bull market should buy early to capitalize on rising prices and sell when the market reaches its peak. Although it is difficult to predict when the bottom and peak will occur, most losses will be minor and temporary.
We'll look at a few of the most popular bull market strategies in the sections below. However, because it is difficult to assess the current state of the market, these strategies all carry some risk.
Purchase and Hold
The process of purchasing a security and holding it for the purpose of later selling it is one of the most basic strategies in investing. This strategy necessitates the investor's belief in the strategy.
Increased Buy and Hold positions
Increased buy and hold is a riskier variation of the classic buy and hold strategy. The increased buy and hold strategy is based on the idea that an investor will continue to add to their holdings in a particular security as long as its price rises.
If You're in a Bear Market, Here's What You Should Do
If you find yourself in a bear market, the first and most important thing to do is to remain calm. An investor's worst enemies are fear and greed.
Don’t panic sell
You might be tempted to sell all your stocks in a panic and stuff the money into your mattress if you didn't rebalance your investment portfolio before the start of the bear market. This is a terrible plan.
March 9, 2009 marked the end of the bear market triggered by the financial crisis of 2008.
An investor who didn't sell any of their holdings (assuming the companies they invested in didn't go bankrupt) would have seen their money return to its previous level within a few years, then explode in value over the next half-decade.
Although such criteria made the share market appear tidy and ordered, it is far more chaotic in reality. If shares fall for several days straight, it might signal the beginning of a new bearish trend, or it could simply be the share market behaving strangely for several days before continuing to rise.
Investors spend a lot of time (and money) attempting to predict when a bull run will end, so they can sell and when a bear stock market will end, so they can purchase. The truth is, no one can dependably forecast those tipping points.
Most investors perform far better if they stick with their investments through bull and down markets.
The phrases "bull" and "bear" are used on Wall Street to characterise the stock market's performance. A bull market occurs when stocks rise, whereas a bear market occurs when equities fall. It's difficult to anticipate whenever the market will swing bullish or bearish.
Your best chance is to stick with equities and invest according to your risk tolerance.
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