Because investors’ attitudes greatly influence the financial markets, these terms also denote how investors feel about the market and the ensuing economic trends. A bull market is an economic upturn characterised by increasing employment, strong economies, and increasing GDP (gross domestic product). This is the opposite of a bear market which has fewer job opportunities, lower salaries, and decreased corporate gains due to increased competition. The beginning of a bull market may be difficult to spot but typically, bull markets follow periods of slowdowns or recessions where prices have become very low. Before the Dot com bubble burst in 2000, the stock market witnessed one of the longest bull markets.

For experienced traders only, using strategic leverage during bull markets can amplify returns. This might involve margin trading or leveraged ETFs that provide 2x or 3x exposure to market movements. As with bull markets, cryptocurrency bear markets often require deeper corrections—typically 30-40% drops—to be considered true bear markets. The ebb and flow of buying and selling keeps the market from becoming so expensive the regular person couldn’t afford to trade.

Especially in a prolonged bull market, investors can forget the pain they experienced in the last bear market and feel like the bull market will never end. This is perhaps the biggest risk that an investor might face in a bull market. A bear market is often marked by low investor confidence and a declining economy. The bear market surrounding the financial crisis of 2008 saw the S&P 500 decline by nearly 40% during the 2008 calendar year. The bear market occurred during what some referred to as the worst economic downturn since the Great Depression of the 1930s.

What is a bearish trend, and how do you spot it?

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• We often hear the terms bull market and bear market in reference to stock market conditions.
• Prospective investors should confer with their personal tax advisors regarding the tax consequences based on their particular circumstances.
• Let’s look at what happens when the market takes a downturn, a bear market.
• Seeing the value of your portfolio go down can induce anxiety, and investors can panic-sell at the bottom, sometimes just before a recovery.

Further, businesses – especially those publicly listed on stock exchanges – also have strong influence on wider market movements. Declining profits and corporate pessimism are hallmarks of a growing bear market, whereas bull markets see consumers spend more money, driving profits and share prices upwards. Many investors in a bull market will usually be rewarded for buying and holding stocks for an extended period, as these investment prices tend to rise over time. Conversely, investors who buy and hold assets in a bear market commonly experience significant losses.

Stock prices rose to a whopping 417%, with just a correction exceeding ten percentage points. Investor appetite for securities increases, leading to a surge in stock prices when supply shrinks. This may happen even before the broader economic indicators, such as GDP, grow. Furthermore, why are we referring to the stock market as it resembles these scary animals? The use of ‘bull’ and ‘bear’ to technical analysis overview portray market conditions stems from how these animals attack others. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.

Technology and innovation stocks

In the crypto space, bear markets can be triggered by news events such as regulatory uncertainty, ICO scams, and major hacks. For instance, Bitcoin’s price plummeted after the Mt. Gox hack in 2014. When the line is sloping downwards, it typically indicates that the market is in a bearish phase. Unlike in a bullish market, which will have higher lows and higher highs, in a bearish market, you get “lower highs” and “lower lows”. Generally speaking, a bearish trend is when the price of an asset falls over a continuous period. Another way to identify a bullish trend is to look at moving averages.

Trading

Bear markets can be tricky and scary, so it can help to seek professional guidance. Shorting stocks essentially means you’re betting on the price going down, which can work to your advantage in a bear market. However, the risks are higher because the potential losses are unlimited — the more the stock gains, the more you can lose. During the expansion phase of the business cycle, businesses steadily grow their profits as consumer demand for goods and services increases. In turn, businesses increase production, hire more employees, and raise prices, which is typically good for stock values.

• Securities products and services offered through Ally Invest Securities LLC, member FINRA/ SIPC.
• There isn’t a hard-and-fast rule, but some analysts describe a bear market as a decline of 20% or more off recent highs in the market across a broad range of asset classes.
• Bear markets are closely linked with economic recessions and depressions.
• Big market swings in either direction can feel overwhelming, especially when you see the effect they have on your money.

Bull Market

The longest bull market in history started in 2009 and extended through 2020. The start of this bull market was on the heels of a severe bear market tied to the financial crisis of 2007–08. In a bull market, the ideal action for an investor is to take advantage of rising prices by buying stocks early in the trend (if possible) and then selling them when they have reached their peak. Bear markets can be triggered by economic recessions, high inflation, interest rate hikes, or global crises like the 2008 financial crisis or the COVID-19 pandemic.

Taking a long-term approach can help you avoid the worst of a bear market. You might not enjoy seeing stock prices fall, but if you don’t sell, those losses are just on paper. Over the long run, if prices rebound during the next bull market, then that downturn essentially didn’t hurt you. It might have limited overall gains, but over the long run, you’re likely to live through both bull and bear markets, and the market still tends to trend upward. As prices fall, fewer people invest and more people sell off, unwilling to risk losing money as no one knows how low the market will go.

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. This gives traders the opportunity to make profits in both bullish and bearish markets. A bear market can vary in length but can last from a couple of weeks to an average of two years.

Once people realize that assets are priced higher than they’re worth, a massive sell-off is inevitable. Combine that with the general unwillingness to buy, and what you have is a recipe for a market crash. That way, when markets rebound, as they always do, the investor does not have to “time the market” or find an optimal point in which to jump in. At that point, according to Buffett, rising prices become a daily reinforcement and investors, conditioned like Pavlov’s dogs, feel they can’t miss the party. Market timing is notoriously difficult, and you never know when the market is going to hit its bottom.