In the world of stock investment or trading in any kind of asset class, the terms’ bull’ and ‘bear’ are often used. Investors generally refer to the positive and negative price movements for bullish and bearish market trends, respectively. These two terms represent the market condition in general. Market direction is one of the significant factors that affect your investment portfolio.
Many investors only trade when the market is either bullish or bearish as they believe these are the best times to enter the market and open or close their position. This article will discuss both the trends profoundly and understand what trend is suitable for investors according to their investing style.
Overview of Bear and Bull Market
The bull market refers to the market where securities prices are likely to go up, while the bear market refers to the market where securities prices are likely to decline. Thus, Bullish investors and bear investors are known as bull and bear respectively in the market.
Various stock market or financial news outlets may have used the labels bullish or bearish. These sources regularly classify market circumstances based on stock traders’ and investors’ projections.
The market trend affects the sentiments of the traders or investors. This sentiment is called bullishness or bearishness. Typically, the majority of investors follows the bullish, while some of them are bearish in nature. This is because the market tends to give positive returns in the long term. So the market as a whole acts as bullish for a long time horizon.
If you’re new to investing, there are a few features that can help you comprehend what bullish and bearish markets represent.
Origin of both the terms
It is stated that the name bear was coined first in investing, and the phrase bull was coined afterwards as a counter. The terms bull and bear were derived from the two methods the respective animals attack, regardless of which occurred first. A bull will charge forward with its horns raised, whereas a bear will swipe its paw down, attacking in directions parallel to investors’ expectations of market direction.
Speculative purchases were originally referred to as bulls rather than general excitement about prices and trend lines. When the word originally became popular, it referred to when someone grabbed a stock in the hopes that it would rise in value. Later, as time passed, the term came to refer to the person who made the investment. It eventually morphed into a widespread notion that prices would rise.
The phrase bear market is thought to have originated in both parable and practice. It was mostly on the commerce in bearskins in the 18th century. Occasionally, during this time period, fur dealers would sell the skin of a bear that they had not yet caught. This was an early kind of short selling, in which they traded in a commodity they didn’t own in the hopes that the market price would fall.
What is a bullish trend and a bearish trend?
A bull market is defined by the expectation of growth in the stock market’s overall value. This is primarily attributable to rising market share values in the entire stock market. The word is typically used when stock prices and the market have increased in value for at least a few months.
A bull market is a period in which financial market prices continue to climb for an extended period of time. A bull market can go on for a long time, if not years. Bull markets are marked by a high level of economic confidence and strong consumer sentiment.
When investors believe the market is declining in value, they refer to it as a bear market. If stock market values have been declining for several months or years, investing news sites may label the market as pessimistic. This is a term that can be used to describe the state of a market segment when the price of those shares has dropped.
The bear market is the polar opposite of the bull market. The price of securities is consistently declining throughout this time, which stimulates selling. This is due to the fact that many investors prefer to sell their stocks out of fear of incurring further losses. Fear and pessimism are stoked in the market as a result of this.
Bull markets are cyclical, lasting a few weeks or months at a time. Secular bear markets, on the other hand, can linger for years.
Bullish vs Bearish trend
Consider what economic, political, sociological, and global variables influence the stock market’s value in an upward or downward spiral to better comprehend bullish vs bearish markets. You can be termed a bullish investor if you have a long or short-term optimistic emotion toward equity, an index, or the broader stock market.
As previously said, market mood can be bullish or bearish, indicating either a positive and optimistic attitude or a negative and gloomy outlook. Human emotions drive market sentiment, which is a cyclical behaviour. When there is optimism, enthusiasm, and thrill in the market, it is called a bull market. There is the greatest financial danger at this time.
Negative emotions such as worry, denial, fear, desperation, panic, submission, and depression take hold after that. This is when asset values have declined, and it is the best time for investors to make a profit. After that, the cycle repeats again, and the mood shifts to one of hope, relief, and optimism.
Bull markets signify that stock market share prices are rising. However, when the economy is doing well, the word is also utilised. This word, once again, refers to how individuals expect the market will perform in the future. While previous performance is one factor that investors use to predict future situations, there are others.
Investors may be negative on the market if the economy is doing poorly and the unemployment rate is high. This is frequently accompanied by a drop in stock prices and value.
Recent events may have a significant impact on the overall market picture.
How are they different?
You can be termed a bullish investor if you have a long or short term optimistic emotion about equity, an index, or the whole stock market. For example, news, agreements, or increasing earnings can all cause a stock to become bullish.
You can also be bullish in other markets even if you don’t believe that the stock market will perform well. For example, you may be optimistic about any asset because you believe the stock market will fall and inflation will rise in a few times, making that asset a desirable store of value.
Bullish is also a term that is frequently used to describe a stock. For example, a stock might be bullish if there is favourable emotion toward it or if its price has been growing for a long time. On the other hand, if you believe the overall market’s value, certain shares, or specific sectors will collapse, you are a bear investor. To put it another way, it’s entirely the opposite of being bullish.
When investors are highly negative on a stock, they may short sell it, which means borrowing shares of stock to sell them in the hopes of repurchasing it at a lower price later. Thus, they will never have to buy it back if the company goes bankrupt. However, only the most experienced investors should attempt this, as the potential losses are limitless.
Do you buy when the market is bullish or bearish?
When you know whether other investors are bullish or bearish, it might help you decide if your investment portfolio needs to be adjusted. Alternatively, consult a financial specialist.
Buying during a down market might be an excellent long-term investment strategy. However, if the stock price does not recover, it will be risky. Or if the company goes bankrupt due to the current economic situation.
Every market goes through a cycle. For many years, we enjoyed a robust bull market. Then came the world’s shortest bear market in history. For investors and those approaching retirement, this volatility can be exceedingly frightening.
Consider seeing a financial expert to determine whether an investing decision or plan is based on emotions or something more objective. It doesn’t have to be challenging to find a qualified financial counsellor.
Start looking for a financial advisor today if you’re ready to attain your financial goals. You can also take advice from well-regulated and reputed brokers like Investby. You can check out the Investby review here to know more about the broker.
A free investment calculator is one approach to manage your portfolio in either a bull or bad market. In addition, this type of tool can assist you in limiting the impact of emotion on your financial selections.
What Does It Mean to Be Bullish?
A bullish investor expects the price of one or more securities will rise. This is true regardless of market size. A bullish investor may feel that the market will rise as a whole, anticipating broad benefits. In some circumstances, an investor may expect to profit from a particular industry, stock, bond, or commodity. If an investor is positive on a company, for example, he believes the stock will rise.
The term “bull market” has the same connotation as “bull market.” It exists when prices, usually of shares, are rising. While not all stocks will rise, the major equity indices will. During a bull market, some popular indices and the FTSE 100, for example, are predicted to rise, despite the fact that certain individual stocks and sectors may not.
In a bull market, it’s possible to say that the dominant emotion is greed or fear of missing out.
Investing should always be founded on facts and data, careful study, and a plan, regardless of whether you are a bull or a bear and whether the market is moving up or down. Consult a financial counsellor if you need assistance with financial planning, even if the market is booming.
I hope you now have a better understanding of how the market mood affects investment decisions. However, because this is an ethereal emotion, it isn’t easy to quantify. Surveys and indicators can be used to gauge the market mood. Recognise the impact of market sentiment and try to pinpoint the indicators. It’s important to remember that the idea is to purchase low and sell high. Investors can use our recommended broker PrimeFin. Read the PrimeFin review.