By Vishweshwar HS, www.showmytrade.com
In the stock market, we keep hearing the terms “bull” and “bear” quite frequently. Bull and bear markets is describing the market conditions of extreme uptrend market (appreciating the stock price) and downtrend market (depreciating the stock price), respectively. These conditions are affecting one’s investing and trading fortune! “A Simple Guide to Bull and Bear Market” is a useful article to understand the subject.
The ‘bull’ and ‘bear’ references are used in the stock market, are taken from animals bull and bear. How these animals aggressively attack the opponent. A bull, when facing the opponent, thrusts its horns up into the air upwards. People are bullish on the price of the stocks to go up much higher (optimistic)! While a bear facing the opponent swipes its paws downward. People bearish the price of the shares to go down much lower (pessimistic)! Hence we use the word bull and bear, respectively.
A bull market is a constant rise market. In this period, investors have faith that the uptrend will continue over the long term. In this scenario, the country’s economy is growing stronger, good demand for goods & services, investor sentiment is bullish, and employment levels are high.
Between April 2003 to January 2008, India’s Bombay Stock Exchange Index, was in a bull market trend for about five years, as it increased from 2,900 points to 21,000 points.
In America, between 1982-2000, the Dow Jones Industrial Average (DJIA) averaged 16.8% annual returns. The NASDAQ, a tech-heavy exchange, increased its value five-fold between 1995 and 2000, rising from 1,000 to over 5,000.
Whereas, a bear market is a constant decline market. Share prices are sharply dropping. In this scenario, the country’s economy is slowing down, no good demand for goods & services, investor sentiment is bearish, and employment levels are low.
A bear market is more dangerous for the investor as the price of share stocks loses value. Most investors withdraw their money from the stock markets.
Generally, If the market as a whole or specific sectors/securities fall 10% from the top, we call it “Correction,” and the market fall by 20% we call it a bear market.
The examples of the bear market in India: during 1992, 1994, and the dotcom crash of 2000.
Some examples of the bear market in America, during 2018, between 2007 and 2009.
In a bull market, an investor takes advantage of rising prices by buying stocks early in the trend and selling the stock when in their peak. The characteristic of the bull market is a small low and temporary loss (at times, shares can be down by 10%). In the Bull market, an investor confidently invests in more equity with a higher probability of making a return.
Buy and hold equity shares, add more positions on the dip; call options are some of the ways to make money in a bull market.
In a bear market, an investor has the chance to lose money is higher as stock prices are continually losing value, and the bottom often not in sight.
An investor may turn to defensive stocks, whose performances are only minimally affected by changing trends.
Short selling, put options, and selling on the rise are some of the ways to make money during a bear market.
A bull market is a rising market, and usually, the economic growth rate is high. In contrast, a bear market is a market that is receding, where most stocks are declining in value. Both bull and bear markets have a considerable influence on your investments. Better note the market and trade accordingly.
Whether bull or bear market, nothing is permanent. The stock market, in the long run, has given a positive return.
Related Article: What Are Different Styles Of Investing?
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