If you are keen on knowing more about the share market, you must have already heard about the terms ‘bull’ and ‘bear’. Now, did you know that these two words play a very important role in defining the state of the stock prices? What exactly are bulls and bears in the stock market?
Published on 01 March 2023
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These two are technical jargons that are synonymous with different types of traders. The terms ‘bull’ and ‘bear’ describe the general actions, sentiments, and attitudes of an individual asset or the stock market as a whole. Investors generally use the terms ‘bullish’ and ‘bearish’ to describe their market sentiments regarding the financial markets or specific securities.
As you read below, you will be more acquainted with these two terms and understand what they stand for.
What is a Bull Market?
A bull market refers to the share market condition when the stock prices rise and investor sentiments are confident. Other investors are also encouraged to invest in the shares during this condition. In general, when the share market is ‘bullish’ in nature, the economy rises, and unemployment is less.
So, why is it termed a bull market? Have you ever witnessed a bullfight? It looks gruesome, true, but during a bullfight, the bull locks its horn to its target and tosses it around in the air. And similar to how the bull makes its target rise high from the ground, the bull market is also about the times when things are on the rise. Buyers’ confidence has a meaningful impact on the stock market, and their confidence soars during a bull market. In addition, investors are more willing to acquire stocks due to the thriving economy and low unemployment rates.
What is a Bear Market?
A bear market refers to the share market condition when there is a decline in the share prices. It usually happens for a few months when there is a dip in the prices of an asset, group of securities, bonds, or the market as a whole.
Contrary to the bullfight, a bear pins its target to the ground. So, now you can gauge why a dip in the market is called a bear market. Also, when we say that optimism and buyers’ confidence fuel the bull markets, bear markets are the opposites. For example, a bear market occurs when there is an economic slowdown in the country and unemployment rises. During this time, the investors are looking to sell off their shares and opting for a fixed-income instrument.
The Bull Vs The Bear
The share market is always in flux. If you are an experienced investor, you know that small gains and losses can result in flattened markets. Additionally, market corrections and short-term trends can induce downward swings causing more substantial shifts in the market. Hence, the bulls and bears have existed for a long time.
As there are so many differences between a bull and a bear market, making financial decisions will differ significantly.
In a bear market, investing in equities should be done with extreme caution as there will be a greater risk of loss. However, if you anticipate a bear market, you can invest your money in fixed-income securities.
In a bull market, there is an increased potential for higher returns. Hence, buying stocks and then selling them before they reach their peak is a good strategy to profit from the market’s rising value. Also Read: Everything you need to know about Bear Trap
Conclusion
In any of these markets, your aim, as an investor, should be to buy stocks at a lower price so that when there is a rise in the market, you will be able to gain out of them. However, even though market experts would spend hours determining what would cause the next bull market and how much time it will last, you can find no perfect formula to determine whether the share market is on the rise or will drop the very next moment. So, it’s just better to keep invested and wait for good returns.
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High unemployment rates, fall in stock prices, and a fall in GDP are a few of the key indicators of a bear market.
Investors are labelled as bulls and bears in the share market. A ‘bull’ refers to an investor who purchases shares because he is confident that the market is going to rise; on the other hand, a ‘bear’ investor will sell off the shares as he feels the market will dip.
One of the worst bear markets happened in U.S. history during the stock market crash of 1929. This led to the Great Depression, and the bear market lasted almost three years.
A market is generally defined as a bull market when the market value has risen by 20% from the 52-week high.
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