What is The Bull Market?
Bull Market and Bear Market – two terms so simple but so complex in the trading world. Are you interested in trading and investing in the stock market any time soon? You must get acquainted with them and learn to use them to your advantage.
Bull and bear are used to describe an acceleration or deceleration of the value of the stock on the market. For investors, it can bring smiles to your faces or increase your heartbeat.
What is The Bull Market?
Using the behavior of a bull, a bull indicates an upswing in the market. It is a situation in the financial market when prices are expected to rise or are on the rise and stays that way for a period. The word bull market, while mostly synonymous with the stock but can be used in any buying and selling market.
These include stocks, cryptocurrency, Forex, real estate, bonds, and commodities. The bull market is a confidence booster for investors as they enjoy long periods of rising prices, especially in a market that is susceptible to rising and falling.
However, while investors are popping champagne to celebrate a bullish market, having prices on the rise for too long is not a good thing either. As a long-term bullish market, the result is assets been undervalued, creating an asset bubble.
An asset bubble is a condition where a stock or security remains on the rise for so long that the product is not as valuable as the price. When a stock reaches this level, investors become afraid, panicked because of an uncertain future. This causes the bubble to burst as investors start to sell, which results in a dramatic price drop.
Now, while panic is the order of the day, investors can still salvage their earnings on the market. When the price comes down a bit, say 10 percent, it is okay as profit is made. This slight but consequential drop is referred to as the market correction. However, the market can go in two directions - back up in the bull or down on the bear. When a bull market drops beyond 20 percent, it is heading into a bear as the price can take a nosedive, leaving investors to mourn the losses.
Understanding a Bull Market
Bull markets have certain characteristics that will be discussed ahead. One factor that affects any bull market is human emotions and psychology towards the market. Let us face it; it is a good thing to see your investment gaining day in day out on the market. However, the fear of a crash can send panic and doubt waves through the market, ruining a perfectly fine trend.
What is The Bear Market?
It is everything a bull market is not. It is the exact opposite and can send investors scrambling to sell their stocks to recover their monies. A bear market is a condition in the financial market when the prices of stocks and commodities are on the decline. Usually, the bear market comes up when the economy is on a downturn and widespread pessimism and doubt among investors about the future of the market.
Understanding The Bear
The market will always fluctuate; it is normal and depends on what investors are doing and how they are viewing the future value of the stocks and commodities. Now let us get something clear, a market correction is not a bearish market. A market correction is necessary to create a balance and keep it sustainable (prevent the economy from crashing). These slight changes are okay, but when a bullish market goes down beyond 20 percent, it can be the beginning of a bear market.
Other factors that contribute to a bear market are the demand and supply level. This is the first sign of a bullish or bearish market. When a stock price is high, and investors want to buy into it, the price drops and vice versa. Political conflicts, war, refugee crisis, general election, changes in government policies, diseases, and shifts in consumer behavior are elements that can trigger a bearish market.
Bull vs. Bear Markets
A bull is the opposite of a bear in the market. While the bull signifies a stable economy, the bear tells investors to watch the money and the market or risk losing. It not all that bad until the price or market value of assets go down beyond 20 percent. Other factors that propel a bull market are a strong gross domestic product, low unemployment rate, high security in the country, and a booming business sector.
Difference Between Bull and Bear Markets
In a bull market, market sentiment is positive, as investors are willing to participate in the hope of reaping high at the end of the day. In a bear market, it is negative as investors remove their monies from the market, causing instability and panic among other investors.
In a bull market, consumers have money to spend and are willing to use it too. In a bear market, income sources are reduced; spending is low as people save more, causing a decline in the market value.
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