Bull Markets and Bear Markets: What They Mean for You

Bull markets and bear markets are natural occurrences in the stock market that are often confused with each other.



10/6/20223 min read

Bull Markets and Bear Markets
Bull Markets and Bear Markets

What is a bull or bear market?


In bull markets, the market grows substantially and sustainably. It is referred to as a bear market when the market declines over an extended period and/or substantially. A unique combination of benefits and drawbacks can be found for each of them.

Markets are often described either as a bull market or a bear market, depending on whether you are researching cryptocurrency, stocks, real estate, or some other asset. Bull markets are markets that rise, while bear markets are markets that decline. Both terms are generally reserved for types of markets that experience day-to-day volatility (or even moment-to-moment volatility):

  • Movement mostly up or down for longer periods of time

  • A swing of 20%, which is widely accepted by the market, is considered significant

What is a bull market?

As the name suggests, a bull market, or bear run for short, is defined by the majority of investors actively buying securities in the market, the amount of demand outweighing the supply, the level of confidence in the market, and price appreciation. When the price of an asset starts to rise rapidly, this could indicate that a majority of investors are becoming optimistic or "bullish" about further price increases and that a bull market is about to begin.

Bulls are the investment enthusiasts who believe that prices will rise in the future as a result of economic growth. In addition, the increase in investor confidence tends to create a positive feedback loop, which attracts additional investment, causing prices to rise even further.

An investor might try to determine a market's sentiment (the measure known as "market sentiment") to determine how much confidence the public has in a given cryptocurrency.

When does a bull market end?

You can have dips, corrections, and fluctuations even in a bull market. Short-term downward movement can be so common that one may misinterpret it as the end of a bull market, which can cause a lot of confusion. As a result, it is crucial to look at the price action over a longer period of time when looking for any signs of a trend reversal. "Buying the dip" often describes investors with a shorter timeframe.

It has been historically observed that bull markets do not last forever, and investor confidence will eventually dip - whether this is caused by unfavorable legislation or unforeseen circumstances such as COVID-19. An abrupt decrease in price can initiate a bear market, in which investors begin to believe that prices will continue to fall, causing a downward spiral as they sell in order to prevent further losses accumulating.

What is a bear market?

Prices are falling, there is less confidence, and supply exceeds demand in bear markets. Thus, "bears" represent pessimistic investors who believe prices will decline. For inexperienced traders, bear markets can be challenging.

The bear market is notoriously hard to predict when it will end and when it will reach its bottom level — as the process of rebounding is usually a slow and unpredictable one that can be influenced by a variety of external factors including economic growth, investor psychology, and world news and events.

Opportunity can also come from them. A bear market can be an opportunity to buy when the cycle reverses if your investment strategy is for the long term. There can also be temporary price spikes or corrections for investors with shorter-term strategies. A short sale strategy, for example, is a method of betting that the price of an asset will decline, which is suitable for more advanced investors.

Investing a set amount of money every week or month on crypto is another strategy many crypto investors use, whether the asset is rising or falling. By doing this, you diversify your risk.

Where did these “bull” and “bear” terms come from?

There is no clear origin for this term. It's believed that most people derive them from how the animals attack: bulls ram upward with horns, bears swipe downward with claws. The origin of the terms has, of course, been studied for many years. Here is an explanation from Merriam-Webster that may interest you.