What is a bull market / What is a bear market?
Definition: Bull markets are defined as markets that are experiencing prolonged and/or significant growth. Bear markets are defined as markets that are in a state of long-term and/or significant fall. These are the main market cycles, when a market is steady for a long time, without significant growth or decline, it’s often referred to as “moving sideways”.
What is a bull market?
A bull market, also known as a bull run, is a period of time during which the majority of investors are purchasing, demand outnumbers supply, market confidence is high, and prices are rising.
If you find prices swiftly heading upwards in a certain market, it could imply that the majority of investors are growing optimistic or “bullish” about the price rising further, and that you’re about to enter a bull market.
The term “bulls” refers to investors who believe that prices will rise over time. As investor confidence improves, a positive feedback loop occurs, attracting additional investment and driving prices upward.
Because public confidence in any financial asset has a significant impact on its price, some investors try to gauge investor optimism in a market (a metric known as “market sentiment”). A great representation of this is the fear & greed index.
When does a bull market come to an end?
Even during a bull market, there will be dips, corrections, and volatility. Short-term downward moves can be easily misinterpreted as the end of a bull market. This is why it’s critical to look at any potential signals of a trend reversal in a broader context, using longer time periods to examine price movement. Investors with a shorter time horizon frequently refer to this as “buying the dip.”
Bull markets don’t last forever, and investor confidence will eventually dwindle – this might be sparked by anything from bad news, such as unfavorable legislation, to unforeseeable events, such as the COVID-19 pandemic.
A significant downward price movement might signal the start of a bear market, in which more and more investors feel prices will continue to decline, leading to a downward spiral as they sell to avoid more losses.
What is a bear market?
A period of time when supply exceeds demand, confidence is low, and prices are declining is referred to as a bear market. As a result, pessimistic investors who anticipate prices will continue to decrease are known as “bears.”
Trading in bear markets can be tough, especially for rookie traders.
It’s famously difficult to anticipate when a bear market will end and when the lowest price will be reached, because rebounding is typically a gradual and unpredictable process impacted by a variety of external factors like economic growth, investor psychology, and world news or events.
A bear market, on the other hand, can bring opportunities. After all, if you have a longer-term investment strategy, buying during a bear market can pay handsomely when the cycle turns around. Investors that follow shorter-term strategies should keep an eye out for price surges or corrections.
There are further tactics for more skilled investors, such as short selling, which is a way of wagering on an asset’s price falling. Many crypto investors also use dollar-cost averaging, which entails investing a certain amount of money (say $50) every week or month, regardless of whether the asset is gaining or dropping in value. This spreads your risk and allows you to invest in both up and down markets.
Some key questions
What does a bull market mean?
A bull market refers to a time period (cycle) in the financial markets where asset prices rise.
What does a bear market mean?
A bear market is the opposite of a bull market – a market cycle where prices fall.
Where did the terms “bull market” & “bear market” come from?
The origins of these terms, like many others in finance, are obscure. The majority of people believe they come from the manner each species attacks: bulls thrust their horns forward, while bears swipe their claws downward. There is a lengthy history of speculation about the origins of the phrases.
How can I profit during both market cycles?
The main philosophy is simple: you want to buy when assets are cheap (during a bear market), and sell when prices are high (before the end of the bull market). This is not always easy, since there is no sure way to know how much assets will decline in value during the bear market, and at the same time – how high they will climb during the bull market. There is also no way to know how long each market cycle will last. To avoid the pitfalls of misjudging a market cycle, you can employ a strategy such as dollar-cost-averaging.
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