Difference Between Bull Market And Bear Market With Comparison Chart

In a bull market, investors willingly participate in the hope of obtaining a profit. The feeling of despondency changes to hope, “optimism”, and eventually euphoria, as the bull runs its course. This often leads the economic cycle, for example in a full recession, or earlier.

Bull market conditions can last for decades, and many successful investors have bet very wrongly by trying to predict the end of a bull market. A bear market refers to a decline in prices, usually for a few months, in a single security or asset, group of securities, or the securities market as a whole. Typically, a move of 20% or more from a recent peak or trough triggers an “official” bear or bull market. In a bear market, however, the chance of losses is greater because prices are continually losing value and the end is often not in sight. Even if you do decide to invest with the hope of an upturn, you are likely to take a loss before any turnaround occurs.

What Causes Bull And Bear Markets?

Kirsten Rohrs Schmitt is an accomplished professional editor, writer, proofreader, and fact-checker. She has expertise in finance, investing, real estate, and world history. Kirsten is world currencies also the founder and director of Your Best Edit; find her on LinkedIn and Facebook. A trend can only be determined in hindsight, since at any time prices in the future are not known.

William O’Neil reported that, since the 1950s, a market top is characterized by three to five distribution days in a major stock market index occurring within a relatively short period of time. Distribution is a decline in price with higher volume than the preceding session. From 1926 to 2014, the average bear market lasted 13 months with an average cumulative loss of 30%, while annualized declines for bear markets ranged from −19.7% to −47%. In a secular bull market, the prevailing trend is “bullish” or upward-moving. There are a few verifiable indicators that identify the differences between a bull and bear market. But they tend to be the most visible, long-lasting side effects that reveal economic health.

bull vs bear market difference

Some of the indicators include moving averages, the bullish and bearish percentage index and the volatility index . It is possible to profit in both a bull and bear market but it requires different trading strategies. A bear market will eventually end after a large-scale economic event.

Why It Matters To Investors

Lastly, they state that the average bull market lasts 973 days — just more than 2½ years. Also known as leverage trading, margin trading occurs when investors buy the quantity of shares that they can’t afford at a certain price. As a result, the broker lends funds to investor to facilitate the buying of the share.

Money you need for short-term goals, generally those you hope to achieve in less than five years, should not be invested in the stock market. A bear market is defined as starting when stock prices broadly decline by 20% and keep trending lower. Bear markets are characterized by people losing their jobs, gross domestic product declining, and the stock market losing significant value. Bear markets almost never last as long as bull markets and can create buying opportunities for investors. A financial market which is characterised by a consistent fall in the prices of securities is called a bear market. In this market, pessimism is prevalent, and the investors take a short position, i.e. due to the anticipation of loss by holding them, securities are sold by the investors.

  • A bull market can be broadly defined as a continuous period where prices rise — generally for months, quarters or years.
  • With a bull market, stock prices steadily increase, and investors are optimistic and encouraged about the stock market’s future performance.
  • Things like widespread closures, spikes in unemployment claims and social distancing measures were a few of the clues that the economy was headed for trouble.
  • While bear markets can be scary, they are a natural part of the economic cycle and often lead to even stronger market returns.
  • Regardless of the current state of the stock market, it’s important to stay focused on the long-term prospects of the companies in which you are invested.

The first thing you should have in order when it comes to investing is your ultimate financial goals. 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. 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. Etymologists disagree on the exact origin of this term, however, it most likely has its origins as a foil to the term bear. While other theories circulate, this is the most generally accepted source of the phrase bull market.

Literary Evidence For Bear

This gives traders the opportunity to make profits in both bullish and bearish markets. One of the best ways to determine whether a bear market is pending is to watch interest rates. If the Federal Reserve lowers interest rates in response to a slowing economy, it’s a good clue that a bear market could be on the way.

In the bear market, stock trading declines, returns are low, investor confidence is low, and often accompanied by the recession in the economy. The unemployment rate can be used to differentiate between bull and bear markets. Not unlike GDP, the unemployment rate is used to determine the health of the economy. Typically, the more people that are employed, the healthier the economy is. Therefore, bull markets are usually supported by lower unemployment rates.

bull vs bear market difference

Over time, the major U.S. equity indexes go up and down based on internal and external factors. Performance like that excites investors, but typically in opposite ways. Stock prices are rising in a bull market and declining in a bear market. The stock market under bullish conditions is consistently gaining value, even with some brief market corrections.

Interest Rates

Crypto trading involves substantial risk of loss and there can be significant volatility in the price of cryptocurrencies. Crypto trading is not yet available for New York state residents. Please ensure that you fully understand the risks involved before trading. When the stock market is dominated by bulls, the economy grows, while, if the bears dominate the market, the economy declines. The trading of stock is high in bulls market, but in bears market, the stock trading is comparatively low.

Characteristics Of Bullish Vs Bearish Markets

This type of selling was used by many people involved in an early eighteenth-century scandal in England known as the South Sea Bubble. And they both Bull Market vs Bear Market help bull vs bear market difference in determining the stock price movements and investor confidence. Both Bull Market vs Bear Market is used by investors to switch through various modes of buying and selling.

Another indicator would be the market cap of an asset or asset class, that would tell us about how bullish or bearish that asset class was. Both the terms come from the behavior of two animals when they attack. Bear, on the other hand, attack downwards, depicting downward price movement.

A market bottom is a trend reversal, the end of a market downturn, and the beginning of an upward moving trend . A primary trend has broad support throughout Forex news the entire market and lasts for a year or more. These terms are first documented by Thomas Mortimer in his book Every Man His Own Broker.

What Does All This Mean I Should Do With My Portfolio?

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Author: Katie Conner

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