Financial markets over a period of time have a perceived tendency to go in one direction which is known as Market Trend. Traders identify these trends to understand how that particular economy is going towards a bull or bear market. And based on these trends they invest, buy stocks, bonds, etc. This financial market trend is mainly categorized into two categories, they are:
- Bear Market (the market which is going downward) and
- Bull Market (the market which is seeing an upward trend).
What is Recession? and What are the factors of Recession?
Here Bear and Bull are used as a symbol. Bear when attacks have a downward-looking stance that’s why bear symbolizes declining market. Whereas a Bull attacks with an uprising stance with its horns pointing towards the sky, that is why Bull symbolizes the rising market. Read more economics topics here
What is a Bull Market?
A bull market is a phase of the economy when the price rises generally. Widespread pessimism signals the start of this market. The feeling of despondency shifts as the bull runs its course to hope, “optimism,” and finally euphoria. This also leads to the economic cycle, in a complete recession for example, or earlier. It generally starts when stocks rise from their low by 20 percent and end when stocks fall by 20 percent. Many say that a bull market can not exist within a bear market.
What is Bear Market? The Market Downturn and Why It Happens
Bull markets are defined by optimism, trust from investors and expectations that strong performance will continue for an extended period. It’s hard to reliably predict when market trends will shift. Part of the challenge is that there are periods when psychological effects and uncertainty will play a big role in markets.
Features of Bull Market
- Bull markets usually occur when the economy is improving or when it is already solid. They seem to occur in line with GDP and a decline in unemployment, frequently coinciding with an increase in corporate income. Trust among investors will also continue to climb over a span of the bull market. In addition to the overall market tone, the overall demand for shares will be strong. There will also be a general rise in the amount of IPO operation during bull markets.
- The three major stock-market indices usually grow at the same time. That comprises of the Dow Jones, the S&P 500 and the NASDAQ. Consistently, this type of market allows higher-ups and low downs. In a stable economy, a stock bull market exists.
- Although corporate income and unemployment are quantifiable, for example, the general tone of business comment can be more difficult to gage. Securities supply and demand will oscillate, supply low while demand is high.
What to do in a Bull Market
- Buy and Hold: Here the basic investment strategy is the process of buying and holding on to a particular asset, eventually selling it at a later date.
- More Buy and Hold: The idea behind the intensified buy and hold approach is that as long as the price continues to grow, an investor will continue to add to his or her holdings in a particular market.
- Retracement: A retracement is a short period where the general trend in the price of a commodity is inverted. In a bull market, some investors watch for retracements and shift to acquire during those periods.
Bear Market vs Bull Market
A bear market is the opposite of a bull market, marked by declining prices and usually shrouded in pessimism. When the trend is up it is a place for bulls. This is a bear market if the trend is down. Bull and bear markets also coincide with the four-phase growth, peak, recession, and trough business cycle. The beginning of a bull market is often a popular indicator of economic prosperity.
Examples of Bull Market
- India’s Bombay Stock Exchange (BSE SENSEX), from April 2003 to January 2008, had a major upward trend for about five years as it risen from 2,900 points to 21,000 points, more than a 600 percent return in 5 years.
- The newly formed S&P 500 index rose from 360.59 to 610.75 from October 1957 to December 1961, an increase of around 86 percent when adjusted for inflation.
- From June 1962 to January 1966, the stock market soared, with the S&P 500 gaining about 80 percent in value.
What is Depression? Difference between Recession and Depression Read more on market trend here