Trading is the phenomenon that regulates the world and circulates money across the globe. It is continuing for time immemorial and will continue until the world lasts. Therefore, its necessity is directly connected to our livelihood and precisely the survival of human beings. The financial market is a broad term than one might even think. It consists of the cryptocurrency market, stock market, forex market, indices market, commodity market and others. The concept of bull and bear market plays a significant role here.
As an investor, you get a chance to make trading a career. So, the benefits are tremendous and uncountable that stem from financial trading. A trader is always up for lethal gains after knowing how to trade during a bull market and a bear market. These are the most common indicators for investors to either invest in the market or make an exit. It requires an investment strategy, and brokers like T1 Markets, ETFinance, Global TradeATF can help in churning it.
Market conditions bull and bear Market
In the world of the trading market, bull and bear market are conditions that are helpful to traders in more than one way, provided they apply plans. These terms are usually attached to stock market situations. So, if you wish to know whether the market is appreciating or depreciating in value, these indicators can tell you correctly. Also, the situation may remain for a while. As an investor, you need to keep a tab on how the market is performing for making gains through the situation.
So, it is crucial to know what triggers these market conditions and how you can get ahead of the competition while trading. The bear market rally or the bull market rally may impact your investments to no ends.
Metaphorical names Bull and bear Market
The usage of bull and bear market stems from two animals that have different approaches in their respective lives. A bull is always considered raging with anger, while a bear is slightly relaxed and known to procrastinate. So, their behaviour speaks volumes of how the stock market or commodity or cryptocurrency market may behave. Considering that factor, investors decide whether to go for an investment or not in the market.
Any trader who has the talent to discover that when the market is going to go bullish and bearish, benefits will be showering in that condition. Precisely, it is related to how an animal attacks.
There are reasons that cause bull and bear market. Normally, big industrialists, business empires, and governments worldwide decide or trigger the roadmap for both rallies. So, a smart market player will always keep eyes and ears wide open to realise the coming situation.
Interestingly, the terms are said to have been coined in the seventeenth century when the London Stock Exchange came into being. It was the time when bear baiting was quite common. When the bull was pitted against the bear, the latter would use its paws and swat down. But, on the other hand, the bull would use its horns in defence and swing them upside. The bear baiting was a common
However, these theatrics happened centuries ago but left a deep mark during the cultural and traditional evolution. Thus, used even today, but for an entirely different matter, a non-violent one.
Bull market vs bear market
When comparing the bull and the bear market, one needs to understand that it is the comparison of the direction the stock or any other financial market is running. A stock market is a compilation of stocks and shares of several companies listed on an exchange. When they collectively go high or when most stocks make a profit due to several factors, it is called a bullish market.
The trend may continue for weeks until there is some other announcement or a big breaking. However, investors are the biggest beneficiaries. They earn on every stock they invest their money on. Even penny stocks or commodities, or cryptocurrency surges during the upward trending of the market.
It is the sustained increase in stock markets. Global influencers have an immense mark on it. Shares of each company notice a significant profit for each share. The growth of the market also strengthens the economies of countries. The foreign investment influx is much higher compared to the normal days’ trading. The bullish market trend continues for the long-term usually. So, traders are hopeful their fortunes will remain intact with the investment.
Moreover, a nation gains stability in its economy; inflation is in control and employment in the market surges subsequently. So, these benefits push stock prices even further.
On the contrary, the bear market is all gloomy and dull in approach. Stock prices fall during the trend, and the economy slows down. It indicates that many investors are withdrawing the money that they invested during the bearish market trend. It also exhibits that the market sentiment is negative. There’s enough market data that suggests the reason for the bearish market trend. Most stocks lose their value or witness receding. Also, dealing in penny stocks can script massive losses.
Notably, a bear market is considered when experts register a 20 per cent or more fall. That’s how it is found. So, unless and until there’s no such significant plunge, it is not called a bear market trend.
During the bear market trend, share prices plunge continuously without a stoppage. There are chances that the market bottom is near. The key takeaways here are that investors should wait before buying. Also, this is the best time to hedge and make proper gains when the market bounces back. For that to happen, one needs to invest on a long-term basis.
The unemployment rate during this downward spiral sometimes reaches an all-time high. Moreover, inflation goes sky-high and foreign investors also start withdrawing their funds. Downward movements give a sense of fear among traders, which makes the situation even more rampant. Markets can last for days to a few weeks in this condition until a formal announcement or a breakout of huge news for countering the great depression.
However, companies and governments of all nations are wary of such a situation and they take swift measures to curb the situation. Stimulus packages are announced for mitigating a prolonged issue of free-falling prices.
A catch 22 situation in bear market
Looking at past performance and peers’ earnings, some people turn to trade in the financial market. However, the nuisance in them causes heavy losses. Investing during rising prices is a double edged sword. One needs to realise that buying and selling are parts of it, but when to buy during a bullish market is also tricky and a matter of health planning. When a bull keeps horns upward that means it is ready to take on the opponent but does not guarantee a win.
So, mindful trading is important. Bull markets do not fix meat to profit. Instead, it casts away widespread pessimism that may seep into investors’ minds during low unemployment rates. In other words, after the bullish market, a bearish market is waiting to happen and investors may witness a big drop. Thus, to avoid losing your funds, it is better to not get into any greed and make an exit before further information arrives.
Some traders wait to make more money and lose bigger funds than they pocketed. So, experts also recommend that it is better to sell shares or any other assets before the market changes its route.
Likewise, people might think that a bearish market is all about losing funds and gaining nothing. But it is the best time for investors to hedge their funds and move further. It helps in buying some of the most prestigious stocks at a way cheaper price than their actual valuation. So, one can elaborate their portfolio by making investments during such times. These companies lose prices of their shares not due to their fundamentals getting weaker, but collective sentiments of sellers, who are solicitous to sell everything they have in their basket.
Thus, a bear market occurs due to sentiments most of the time as opposed to any huge loss in various industries.
Different characteristics channelising bull and bear market trends
One who trends in the bearish or bullish markets would know that trading requires training and strategies to become successful. So, it is necessary to read and get ready for the time before investing. Brokers like TradedWell, PrimeFin, InvestLite and Brokereo give an opportunity to their clients to keep seeing a decline and recent highs before purchasing or selling an asset. Here are some of the factors that result in securities rising and plunging over a period.
To know about the characteristics properly, one needs to study financial markets as a whole.
Psychology of an investor
An investor is driven by psychology, which remains etched for a while once it gets into the mind. Fear is among the most dreaded thoughts that stops a trader from taking a calculated risk in financial markets. The pace, rise and downfall of financial markets get determined by what people think or react to different situations. Performance of stock markets and sentiments of investors are directly proportional.
When the bearish market strikes, the sentiment of investors is negative, and they begin to withdraw their money from equities and other fixed-income securities, causing losses in stocks. Thus, it leads to the stirring and develops fear. Hence, outflow increases and the general decline continues with it.
Similarly, when investors think collectively that the market can give them great returns on their money, the inflow spikes incessantly, beating the cyclical bear market. Equity markets blossom, and people start investing in every share, including those stocks which are new and fundamentally weak. However, in the wave of positive sentiment, everything flows smoothly. Traders who make profits and sell them are in profit. Meanwhile, those who stick with such stocks lose their funds.
So, it is good to invest in bullish times, but selling during a reasonable period is equally important to make profits.
The best part of investors’ psychology is that it can trigger both a secular bear market and secular bull market. This is because their robust corporate earnings and low-interest rates drive these stocks. So, moving them in the direction of negative or immense positive direction requires a force of push. And sentiments of traders create that spell of magic.
External changes in trades and business
Generally speaking, an extension of changes forced in industries and trades by cold wars, climate changes, changing import and export norms, rise and fall of currencies, and economies can simulate stock markets globally. From Wall Street, FTSE 100, DJIA (Dow Jones Industrial Average), Dax, Nikkei and other indices, every market gets triggered by investor sentiment. If you analyse personal data, you’ll realise how a bull and bear market can play with the term investor sentiment with the market as a whole.
The rise and fall of prices depend on the performance of each company. An astute trader will always invest in true form, looking at a company’s background, projects, sales and overall revenue, including other factors. So, if that matches the sentiment of a trader, that stock will escalate. For example, Amazon, Microsoft, Netflix, Disney, Facebook, Tesla and Google are among the top companies in the world and profitable. So, investing irrespective of the bull and bear market is profitable.
Stock trading is one of the biggest economic activities that help guide a company’s economy. Also, it gives platforms to foreign investors to trade in any other country’s market. Both sides benefit from it. So, when the foreign funds’ inflow is high, it assists in landing the bull’s market. Likewise, when the outflow increases, it becomes the reason for bear market trading.
Negative news causing the market to turn
Both bear and bull markets are a type of economic cycle. It is like, after the bearish session, bullish will follow naturally and vice-versa. So, veteran traders would know that if they invest in solid stock, the dividend will act as icing, and the cake would be the huge returns. But these things can be altered when hit by a rumour, a strong one. Sometimes, a piece of negative news spreads like wildfire in the times of social media, which is enough to dent the image of a company.
That can make investors believe that the situation of that company is in tatters after the bad naming. So they’ll try to sell all their shares quickly. With everybody trying to snap the equation or selling all shares, the company losses billions of dollars within hours. A conglomerate like Facebook and Google Share had faced it in the past when some countries fined them over privacy issues. Stockholders got scared and started the drive of binge sell.
So, traders who purchased higher-priced shares either had to make amends by holding their stocks or make losses after selling them at lesser prices. Interestingly, when stocks of companies with a trillion-dollar market capital lose their fire, it causes a stir. Therefore, investors in other assets and markets also feel insecure, trying to get rid of their shares.
Lehman Brothers was a mammoth contributor to the global financial recession in 2008. It filed for bankruptcy in the same year. Notably, it was the USA’s fourth-largest investment bank. So, it caused an unprecedented bear market. All sectors were looked upon with the eyes of suspicion by investors.
Positive news impact on the stock market
An experienced trader would know that trading in the stock market is complex if not difficult because, before the launch of an IPO (Initial Public Offering) allotment, it is the positive news that creates an air of bullish market and holds on to the attention of investors. Irrespective of people managing to buy it, other stocks get the best opportunity to improve their image and fortunes under the shadow. The bull market casts positivity elsewhere too.
The economy of a country sees a boost along with the value of a stock. The situation may continue for some days to a few months, depending on the kinds of incoming investments. However, such a period is a rarity, but it does strike those who believe in investing and holding for a longer time.
Investor confidence is high when positive news comes out from several sources of mediums. So, that encourages people to invest in the market.
Rumours causing bull and bear market
A rumour so strong that it can create a bull and bear market can do wonders for traders if they can foresee it. Today, investors have become smarter, call market, put market, futures market, CFD market and other forms are available. Any market player that has the capability of grasping it can make use of bulls and bears.
Bull and bear market is a legitimate thing for investors who invest in the market frequently. Professional traders know how to earn money when the bull market strikes and likewise with the bear market. Both conditions are conducive when they sell high. Understanding both phenomenons are akin to garnering huge money from the market. Also, choosing brokers like T1Markets, TradedWell, IGMFX and others.