Bull vs Bear Markets: Differences & Strategies

In this article, you will learn everything you need to know about hammer chart patterns. Over the years, I’ve built a community of over 200,000 YouTube followers, all striving to become better traders. The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

Investing Strategies in a Bear Market

The market indicators are very strong in a bullish market and vice versa in a bearish market. It is an indicator measuring the number of stocks increasing versus those falling. But most experts agree if the fall is 20% or more, it’s a bear market. When that happens, people get scared and either stop investing in the market altogether or panic sell and pull all their money out. When business profits drop, shareholder earnings take a hit, and so do employment opportunities. The diminishing spending power could force investors to start selling assets, thereby triggering a price fall.

However, investing in any market, whether bull or bear, and taking a long-term approach can help you enjoy gains over the long run. A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value.

Investing in stock markets is similar to a roller coaster ride because frequent price fluctuations are a common occurrence. When any particular trend continues for a longer period, it can be either a bear market or a bull market. The term “Year of the Bull” refers to a prolonged bull market phase where stock prices surge continuously. Some of the longest bull markets lasted for over a decade, such as the 2009–2020 bull run following the financial crisis. This strategy allows you to profit when prices fall by borrowing shares, selling them, and repurchasing them later at lower prices. While more complex than long investing, short selling can generate significant returns during market downturns.

Investing considerations in a bull market

• Bear markets tend to occur before an economic downturn and may signal a recession.
• For the novice investors, these terms are a bit confusing, but one can easily understand the two, by analysing the attacking style of the two animals, which determines the movement of the market.
• No one can predict when markets will rise or fall, so it’s good to be aware of the characteristics of bull markets vs bear markets.
• When you picture a bull, you probably think of a forceful animal lunging forward with its horns held high.
• The stock market under bearish conditions is losing value or holding steady at depressed prices.

We also offer real-time stock alerts for those that want to follow our options trades. You have the option to trade stocks instead of going the options trading route if you wish. Coupled with the crisis in subprime mortgages, this snowballed into a full-blown financial crisis. Knowing the difference between a bull and a bear market helps you understand when we’re in a bear market as opposed to a market correction. However, two that come to mind would be a strong economy and high employment levels. A bull drives its horns upwards, while a bear usually swipes its paws toward the ground.

Bear Market vs. Bull Market: How Are They Different & What Investors Need to Know

• Given the market’s constant volatility and daily fluctuations, these terms are used to describe more sustained periods of predominantly upward or downward movement.
• We do not include the universe of companies or financial offers that may be available to you.
• Whether you’re a seasoned investor or new to stocks, understanding the direction of the market can help you make informed decisions to potentially help protect your financial future.
• In other words, bear markets can lead to opportunities for long-term investors to put money to work.

In cryptocurrency markets, some news events could trigger a bull run. For example, Bitcoin’s price surged in late 2020, coinciding with PayPal’s announcement of the addition of $50 million worth of BTC to its balance sheet. AxiTrader Limited is a member of The Financial Commission, an international organization engaged in the resolution of disputes within the financial services industry in the Forex market.

Accordingly, timing a bullish or bearish market is about analysing wider macro events and long-term growth prospects rather than day-to-day fluctuations. It’s worth noting that both markets are characterised by long-term financial market movements. Small market swings over the space of a few days are not typical of either.

A bull market is a type of market in which prices of cryptocurrencies are generally increasing. Bull markets are typically characterized by optimism and high investor confidence. In traditional markets, a bull market is usually characterized by prices of shares generally increasing.

Both bull and bear markets are part of the normal long-term cycle of investing. Investors will encounter both types of markets over time and their portfolio should be constructed in order to allow them to weather both types of market environments. Investors who purchase stocks or other holdings during a bear market must be prepared for the prices of these holdings to drop further before bottoming out. Using a robo advisor like M1 Finance will enable you to keep your investing costs low. A potential downfall for investors in a bull market is a reluctance to sell and take profits.

Bull market vs. bear market: Similarities and differences

Most people tend to use one tool (and not always the right one) for all jobs. It’s like using a driver instead of a putter when you’re trying to get the golf ball in the hole when you are on the green. Some of these patterns include bullish and bearish triangles, wedges, cup and handle, double top, double bottom, and Quasimodo. Securities products and services offered through Ally Invest Securities LLC, member FINRA/ SIPC.

Bull markets tend to last longer than bear markets, largely because stock prices generally rise over time. The median duration of a bear market is 19 months (less than 2 years), with a median decline of 33%, although their length can range from 1 month to as long as 113 months (nearly 9.5 years). We often hear the terms bull market and bear market in reference to stock market conditions. A bull market refers to major upswing in the markets, while a bear market is a pronounced market downturn. Bull markets often correspond to periods of economic and job growth; bear markets are often tied to periods of economic decline and a shrinking economy.

Editorial integrity

Growth stocks are companies that typically have high growth potential and may have a high price-to-earnings ratio to account for that future expected growth. Bull markets can be favorable to growth stocks, as strong investor demand and economic conditions can help sustain the rapid pace of growth these stocks rely on. For example, some utilities and consumer staples still have consistent returns during bear markets. But keep in mind that you don’t know when or for how long a bear market will occur, so you might miss out on further gains if you adjust your portfolio too much.

A bear market occurs when a stock market index drops by at least 20% from its recent fxtm forex broker review highs. Stock market indices, such as the Dow Jones Industrial Average, Nasdaq Composite, S&P 500®, or Russell 2000, are used by investors to assess overall market performance. In the stock market, the terms bulls and bears are commonly encountered which indicates, how the stock market is doing, at a particular time.

And as you consider the different tools you use for trading, it may also be useful to analyse what’s stopping you from using the right tools for your forex trading. Having a portfolio with a diversified asset allocation can help protect against overall portfolio risk and market fluctuations. The key is identifying sectors with strong fundamental growth drivers and then selecting the companies best positioned within those sectors.

Navigating bull and bear markets

Rising GDP denotes a bull market, while falling GDP correlates with a bear market. GDP increases when companies’ revenues increase and employee pay rises, which enables increased consumer spending. GDP decreases when companies’ sales are sluggish and wages are stagnant or declining. In my comprehensive rundown of bull vs bear markets, I detail their differences, and how to react as economic conditions fluctuate.