Bull vs Bear Markets: What’s the difference?

A bull market is a rise in stock prices and in a broad market index — think S&P 500 or the Dow Jones Industrial Average — over a period of time. A good way to remember this is to think of a bull’s horns as indicative of stock market prices on the rise. Warning signs that a bear market might be coming shouldn’t lead you to change your investment strategy. Instead, ensure that your portfolio is funded with money you won’t need for the next five years, and is both well-diversified and aligned with your risk tolerance. Doing so means you’ll likely ride out the highs and lows of the market better than someone who is trying to time it. When they see a shrinking economy, investors expect corporate profits to decline in the near future.

Active investors, on the other hand, seek to beat the market by picking stocks, timing trades and actively managing their portfolios. Stock prices tend to fall across the board, with few if any companies immune from the decline. This can lead to widespread panic and selling as investors try to get out before their losses become too great. Other markets like forex and commodity futures tend to move in and out of bull and bear markets more regularly due to higher volatility. On the other hand, the investor’s view of future is pessimistic, in the bears market.

An Overview of Bull and Bear Markets

The reverse of a bear market is a bull market, characterized by gains of 20% or more. The chart below shows the deviation in the price of the market above and below the 75-week moving average.

Sometimes a market may go through a period of stagnation as it tries to find direction. In this case, a series of upward and downward movements would actually cancel-out gains and losses resulting in a flat market trend. A market where prices have been rising over time – and haven’t fallen by more than 20% from their most recent peak.

How do bull markets and bear markets differ?

One of the most common reasons for this naming convention is the way these two animals ferociously attack. A bull charges ahead, thrusting its horns up in the air and a bear will use its claw to grab and drag its victim down.

Both significant increases of inflation and interest rates typically lead to recessions. But as it turns out, the connection between bear markets and recessions isn’t as close as commonly assumed. Interestingly enough, some say that the term “bear market” actually came first. It apparently comes from a proverb warning that it is not a good idea to sell the bear’s skin before one has caught a bear. It originally referred to short selling, a practice in which an investor sells borrowed securities in anticipation of selling them at a lower price at a later date.

The bottom line on bear markets

After all, most such changes are only identified well after the fact. That being the case, it’s best to be prepared for either market environment. Not surprisingly, investing https://www.bigshotrading.info/ in a bull market is generally easier than navigating a bear market. That’s because it’s mostly a matter of investing your money, and letting the market grow your portfolio.

• During a bear market, investors often seem to ignore any good news and continue selling quickly, pushing prices even lower.
• Where most people feel really scared or nervous in a bear market, we’re looking to buy $10 dollar bills for $5 bucks.
• It’s a market where quarter after quarter the market is moving down about 20 percent.
• Short Selling is a trading strategy designed to make quick gains by speculating on the falling prices of financial security.
• Note that whenever prices begin to approach 200-points above the long-term moving average, there have been corrections.

As a matter of fact, most investors would be happy enough if they managed to not lose money during a bear market. Market regimes can be tough to define by exact terms, but one can definitely feel them once they’re occurring. If people around you are feeling optimistic about the economy, you’re most likely in a bull market. During the bull market, any losses should be minor and Bull and Bear Market: Definition & Difference temporary; an investor can typically actively and confidently invest in more equity with a higher probability of making a return. The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. This blog does not provide legal, financial, accounting or tax advice.

Why Is It Called “Bear” and “Bull” Market?

The average length of a bear market is 289 days, or about 9.6 months. That’s significantly shorter than the average length of a bull market, which is 991 days or 2.7 years. If you’re a beginning investor, it might be ​​best to buy your index fund, then buy and hold, explains Barros.

It is not intended to offer access to any of such products and services. You may obtain access to such products and services on the Crypto.com App. When the stock goes up again, is great because that’s when we start to collect the profit. Technical AnalysisTechnical analysis is the process of predicting the price movement of tradable instruments using historical trading charts and market data. Bull markets are preceded by Investor confidence, positive expectations, and general optimism in the market. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.

This behavior can help businesses thrive and therefore strengthen the economy. The most prevailing emotions when we invest are fear and greed.