From an investor’s point of view, the bull market and a bear market are two prime phases of the stock market. At times, the country’s economy goes through significant swings. Consequently, the stock market also experiences upward and downward shifts. The extreme appreciation and depreciation (approximately 20%) of share prices in the stock market are called bull and bear markets, respectively.
To become a successful trader, basic knowledge of the stock market such as demat account meaning, bull and bear market, fundamental and technical analysis, etc. is necessary. Let us discuss bull and bear markets and how to tackle them efficiently in depth.
How to Identify a Bull Market?
When prices are rising or are anticipated to rise, this market phase is called a bull market. Bull markets are most frequently associated with the stock market, while sometimes we use this term for other trades like bonds, real estate, currencies, commodities, etc.
Since the prices of securities rise and fall almost continually in trading, the term “bull market” is reserved for lengthy periods (minimum 20% increase in the market index for at least 2 months).
Interesting Fact: Bull markets usually last longer than bear markets. As per InvesTech Research, the average bull market is 3.8 years, and the longest bull market in history lasted 11 years, from 2009 to 2020.
How to Identify a Bear market?
A bear market is a situation when the stock price drop by 20% or more for long period (at least for 2 months). The bear market condition prevails due to pessimistic investor sentiments.
Stock prices represent anticipated future cash flows and company earnings. The value of equities decreases if growth prospects dwindle and expectations are ambiguous. Long-lasting drops in asset values happen due to herd behaviour, anxiety, and a rush to protect against losses.
Interesting Fact: The stock market witnessed the longest bear market of 783 days in 1983, and experienced the shortest of 32 days in early 2020 during the pandemic.
To buy and sell shares in the stock market, you need to pay the demat account maintenance charges.
What are the Characteristic Differences Between a Bull and a Bear Market?
You can become a better investor by knowing the distinctions between these two market stages. Here is the table consisting of noticeable differences in both markets:
|Bull Market||Bear Market|
|Persist for a longer time period||Usually, persist for shorter time period|
|Consistent increase in the price level||Consistent decrease in the price level|
|Higher demand for shares||Lower demand for shares|
|Positive investor sentiment due to economic growth||Negative investor sentiments due to economic recessions|
|Generally, employment rises||Unemployment rises|
|High-interest rate||Low-interest rate|
What Should be Your Investing Strategy in the Bull and Bear market?
As market conditions vary during bull and bear markets, you should adopt different strategies to tackle the market effectively. In a bull market, stock prices show an upward trend, so the prudent move is to buy stocks at a lower price and sell at a high to make a profit.
During a bull market, stock prices decline drastically, so you should use a short-selling technique. Short selling is the best way for investors to gain profit during a bear market. In this strategy, borrowed shares are sold and then purchased again at discounted rates. It is a very dangerous transaction and might result in significant losses.
The stock market has witnessed extreme ups and downs. Some historical market crashes were the Great Crash of 1929, the Go-Go Years of the late 1960s, the Internet or “Dot.com bubble” of the 1990s, etc. Undoubtedly, the stock market is unpredictable, and the chances of lowering your asset value are higher in a bear market than in a bull market. So, it is advisable to grasp the market trend effectively before investing to mitigate risk. Historically, the stock market has shown overall positive returns. Hence, make your investment strategy while keeping long-term gains in perspective.