Bear & Bull Markets Explained
Trends play a crucial role in the market which can affect the decisions of a trader when deciding on what to invest. So in order to make the best choices when it comes to investing, it is necessary to understand what trends are and how they affect financial decision-making for new and current traders alike.
Trends are recognized as the overall direction a market price moves over time. During these periods, a rise or fall in prices can be regularly observed within the market. These movements can be classified as being a bear market or a bull market which can make it difficult for an inexperienced trader to decide the best course of action.
In order to prepare yourself when the trend falls and to ride the trend when it rises, this article will give you insight into what you need to know about the bear and bull market.
A Bear market refers to a sustained price decline within the financial market, or in other words, a sustained downtrend. To be more specific, this trend occurs when an investment price falls 20% or more over at least from its recent high.
Due to the intense drop within the trend, it is usually at this time where traders rush to exit from the market in order to be able to retain their profit or to maintain their coin stability. Because of the massive number of traders that exit during this period, sellers are forced to exit the market as well. This can result in an automatic forced involuntary conversion of assets into cash or cash equivalents also known as forced liquidation. This development within the market results in little trading activity due to the market’s low volatility or its rapid, unpredictable potential to change. Occurrences such as these can last for several weeks to a couple of months for financial markets, while larger economic downturns can last longer for up to several years or decades.
Bull market on the other hand, also known as bull run, is the financial market condition where prices rise or are expected to rise based on the market trend. Specifically, a 20% increase in stock market price after two declines of 20% each is a much more common definition for a bull market.
Bull market also indicates economic growth and expansion. During this sustained rise, many investors and traders take this as a favorable opportunity to profit within the market, resulting in a stabilized economy and high employment rates within a certain country.
Like bear market, this development within the trend can last for months up to several years. Thus the terms “bearish” and “bullish” are frequently used by traders in the market. To simply put, bearish refers to an expected decline within an industry’s stock price while bullish, on the other hand, is when prices are expected to rise.
