During a bear market, investors often seem to ignore any good news and continue selling quickly, pushing prices even lower. This means, if they believe the market is trending in a bullish direction then they can open a long position. If they think the opposite, and they believe the market is bearish, then they can open a short position.

When they feel that prices will start to rise and continue doing so for an extended period, they start buying stocks and are optimistic about their return on investment . The increased optimism among investors likewise causes stock prices to continue rising. Briefly put, the investor starts bull markets through the purchase of securities. This can also be done with fiat currency, as bullish markets typically raise the price of securities. The bull market goes on for as long as supply is exceeded by demand. After a while, the bull gets tired, so to speak, and the market shifts and turns into a bear market.

bull vs bear trading

For most Americans, this principally includes retirement, along with vacations, buying a home and more. By defining your goals, you can make investment decisions based on them. The term bull originally referred to speculative purchases rather than general optimism about prices and trend lines. When the term first came into use it referred to when someone grabbed a stock hoping it would jump up.

Bullish Vs Bearish: Whats The Difference?

At the time, bulls were considered to be common opponents to bears. This is likely due to the popular practice of bear and bull baiting, in which the two animals would be led into a ring together to do battle against one another. The fighting displayed by these animals also may have contributed to the notion; bulls were noted to advance against opponents in an upward fashion, while bears usually attacked in a downward motions. Such an explanation for the terms was even later attributed to journalist and New York Tribune founder Horace Greeley, who was said to have witnessed such a contest in California.

Ever since, Brian has been interested in stocks and the stock market and has traded throughout most of his adult life, managing his own investment portfolio. Brian has 2 degrees, including an MBA, and he also took the Canadian Securities Course. This is exactly what investors are worried about already, and were anxious about throughout early 2021. A bull market has no specific definition, but is a sustained period when prices are rising and generally expected to keep doing so. Typically, a bull market is thought to have occurred when prices have risen 20 percent or more off a recent low.

His expertise covers all corners of the financial industry, having worked as a consultant to big financial institutions, FinTech companies, and rising blockchain startups. However, thanks to the lack of balance in the financial markets ecosystem, we can benefit from profit opportunities during both market conditions. If, for example, the recession hits hard and companies start cutting costs by decreasing their staff, a likely scenario is that they would invest in technology. Thanks to financial engineering, today we also have inverse ETFs.

bull vs bear trading

In both these situations, an indicator like the GDP plays a vital role in giving a bird’s eye view of how the economy performs based on the existing factors. Long PositionLong position denotes buying of a stock, currency or commodity in the hope that the future price will get higher from the present price. The security can be bought in the cash market or in the derivative market. The course of action suggests that the investor or the trader is expecting an upward movement of the stock from is prevailing levels. Bears believe that markets are set to drop in price, so the traditional investment mantra of ‘buy low sell high’ doesn’t apply.

You’ll also hear the term “short-selling.” This is also called shorting. The term “bull” or “bullish” comes from the bull, who strikes upward with his horns, thus pushing prices higher. Bear markets can be scary, but they don’t tend to last very long — though that’s admittedly cold comfort for investors going through one. The years following the dot-com burst of the early-2000s saw a massive dip in the stock market as well as the shuttering of countless tech companies. Household wealth also took a hit of over $6 trillion leading to a recession, according to FiveThirtyEight. A long bull marketoccurred from the early-1980s up until the dot-com bubble bursting in the early-2000s.

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A bear market, on the other hand, refers to a recessionary phase where prices keep plummeting. Now, it’s worth remembering that financial markets are inherently volatile; prices will always fluctuate over any given period. The secular bull market is driven by sustainable and powerful forces that can remain in place for decades. This means the prices of the market or a particular asset can mark above-average returns for a period of 10 or even up to 20 years. Secular bullish markets can be interrupted by short-term bearish moves, but always proceed to mark an even higher high.

Contrarily, declining asset prices indicate low confidence and an incoming bear market. Investor psychology and crypto market performance are closely linked. When in a bull market, the increase in cryptocurrency prices further boosts confidence among investors. As a result, more investors are encouraged to place their investments in the market with the hopes of gaining good profits. Growth stocks in bull markets tend to perform well, while value stocks are usually better buys in bear markets. Value stocks are generally less popular in bull markets based on the perception that, when the economy is growing, “undervalued” stocks must be cheap for a reason.

How Do Bull Markets And Bear Markets Differ?

During this bull market there was an average market gain of nearly 600%. Post-WWII. The years during and following WWII were exemplary of a bull market as the U.S. economy prosperedwhen millions of soldiers returned home. In the end, there is no way to ensure gains in the investment market. All you can do is maintain strong investment tendencies and make prudent decisions.

Peter has over 25 years of experience as a global business management and IT executive. Throughout his professional career, he traded stocks as both a swing and day trader. Peter now trades full time with Bear Bull Traders and is a moderator in the live chatroom.

  • While not every stock will necessarily increase, the market’s main equity indexes will.
  • As such, more investors have faith in the sustained uptrend and are more willing to take risks.
  • Once the stock has dropped in price, you would then buy it and return it to your broker, keeping the difference in price as profit.
  • Bitcoin , Ethereum , Litecoin , Bitcoin Cash and Ripple are leading cryptocurrency products.
  • From 2007 to 2009, the S&P 500 fell about 50%, so we call it a bear market.

While stuck for four months on a ship in Diego Garcia, he came across Andrew’s book, ‘How to Day Trade for Living’, and that launched him on an entirely new journey. Bryan has now been a member of the Bear Bull Traders community for several years. His commitment to offering support to new traders led him to become one of the Bear Bull Trader’s moderators as well as a member of the Peak Capital Trading leadership. Before day trading, Carlos spent bull vs bear market difference 12 years in logistics and customer operations management for a home appliance company. After the company made the decision to relocate to another state, Carlos took this as an opportunity to embrace his passion and become involved in the world of day trading on a full-time basis. Bull markets can last years before they die, but over rolling 10-year periods going back a century, about 6% compound annual growth from the S&P 500 is the norm.

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The bull market run marks an extended period of time during which the economy is sound, and the market is on the rise. During the run, investors are showing optimism and increased positivity towards the future of the market. The bullish market run can last anywhere from a few months to a couple of years. Depending on who they come from, publicly expressed bearish and bullish sentiments can have a notable effect on the price of a particular investment. Investors and financial experts often use the terms “bearish” and “bullish” to describe their sentiments towards particular security, asset class, or the whole market. This sentiment is usually dynamic and can change depending on shifts in events, the analysts’ expectations, news, and more.

To help remember that bearish means falling prices, think of a bear clawing down on its prey. Though bull markets offer plenty of opportunities to make money and multiple existing investments, such situations do not last forever. The investor must know when to buy and sell for maximizing their gains and attempt to time the market. But the expressions took on a more specific meaning among investors and stock traders, who understood the practice of speculating on an anticipated downturn.

This drives up prices further as investors compete to purchase what is available. Typically, crypto traders aim to purchase assets during a bear market, especially during rock bottom. However, it can be hard to know exactly when a bear market has ended, making it hard for investors to take the gamble and purchase low-value crypto that may or may not recover. A bull run refers to an extended period during which a lot of investors are purchasing cryptocurrencies.

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It’s characterized by the above-mentioned characteristics such as rising prices, demand outweighing supply and high market confidence. In the crypto market, the charging bull heralds a bullish phase for cryptocurrencies. Here, you’ll observe cryptocurrencies growing in value with generally favorable economic conditions and optimistic investors looking to make the most of their rising crypto portfolios. A bull market refers to generally favorable economic conditions. It means that a market is on the rise and is also usually accompanied by positive investor sentiments concerning the current uptrend. In conclusion, in a bear market or bull market, we pretty much do exactly the opposite of what everyone else is out there doing.

It was ended by the COVID-19 crisis, which led to halted operations, worsened GDP forecasts, and job losses. Embracing the bull wave is basically the easiest way for someone to make money. However, the good thing is that profit opportunities are always present, despite the state of the market. One of the things people often wonder about is why the markets are named what they are. The most popular theory is that the terms, describing the two states of the market, come from the way both animals attack. Bears, on the other hand, attack with their paws, slashing down.

Top 5 Cryptocurrencies Traders Should Know

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An Overview Of Bull And Bear Markets

The definitive explanation for how these terms came into existence may be lost to the dust heaps of history, though some popular theories linger about how they emerged. Some theories suggest that the bear market term originated from a proverb and was later on popularized during one of the most famous and first market crashes, the South Sea Bubble in 1720. According to others, the idea of bullish markets comes from the early London stock exchange, where traders filled bulletin boards (or “bulls” for short), during volatile trading sessions. When the market was calmer, the board was left bare (this evolved in “bear”).

In the final stage, there is excessive speculation and inflationary pressures begin to appear, signalling a downturn in the market is not far off. If you want to get the essence of the financial markets, the best thing to start with is the bull and bear market definitions. The latter, on the other hand, describes situations where prices are going down. The names of both market conditions pay homage to the way these animals attack.

He also began mentoring and teaching new and aspiring traders how to be successful, starting where they are and with what they have. Ed’s training as an engineer and teacher, and his focus on strategies, processes, Forex Club and reflection from his earlier careers, have benefited him greatly in trading. Jarad is a software engineer who has worked on GIS technologies for the past 7 years for a well-known defense contracting company.

A bull market can be broadly defined as a continuous period where prices rise — generally for months, quarters or years. Like the stock market, other asset classes can also have bull markets, such as commodities, real estate, or foreign currencies. Investing can be risky even for the most seasoned of Famous traders investors during bear market periods. A bear market can be defined as a period in which investor confidence is extremely low along with falling stock prices. As a trader, you might be bullish on crude oil, bearish on the euro currency, bullish on gold, and bearish on Japan’s Nikkei 225 stock index.

Dollar-cost averaging is when you continually invest money over time and in roughly equal amounts. This helps smooth out your purchase price over time, ensuring you don’t pour all your money into a stock at its high . That stock may not have bottomed at $75 a share; rather, it could tumble 50% or more from its high. This is why trying to pick the bottom, or “time” the market, is a risky endeavor.

This entails bringing your portfolio’s complexing back to your intended asset allocation. The necessity from this is derived from returns affecting your portfolio over time. It might be said that the prevailing sentiment of investors who expect a bear market is fear that a coming downturn will wipe out wealth. Tends to be higher during a bull market as companies hire more, but lower in a bear market as companies let go of workers to cut costs. In February and March 2020, the S&P 500 took a historic plunge as the result of economic turmoil and uncertainty from the COVID-19 pandemic. However, with the passing of government stimulus bills as well as optimism among investors, the S&P 500 rebounded, seeing historic gains and closing at record levels.

Author: Maggie Fitzgerald