Knowing the bull and bear market definition shapes the way you trade the stock market. In fact, the importance of understanding the battle of the bulls and the bears is the very foundation of trading.
Emotions move markets, whether good or bad. News also affects how the markets trade. There are different factors that affect whether the stock market goes up or down.
The trick is knowing how to trade in any market without letting your emotions affect you. The beginning of a bear market often induces panic selling. However, if you keep a cool head about you then you don’t need to fall into that category.
BULL AND BEAR MARKET DEFINITION
You need to know the bull and bear market definition so that you know when the market is trading within those parameters. Investing or trading in a bull market can seem easier.
Do you know where to invest in a bear market? These are the questions that are answered by knowing what defines a bull market and bear market.
The market trades in cycles. The buyers will have control for a period of time. Then they take their profits and the bears take control. We need that tug of war between the bulls and bears.
The ebb and flow of buying and selling keeps the market from becoming so expensive the regular person couldn’t afford to trade. A bull market tends to last longer than a bear market.
Sometimes a correction can be seen as the start of a bear market which is not the case. That can affect your trading hence the need to know the bear market definition.
Our stock market courses are provided as a tool to learn different ways to trade in different markets. As a result you’ll be prepared for any market that comes your way.
BULL AND BEAR MARKET DEFINITION – THE BEAR MARKET
What is a bear market? A bear market is when stock prices fall and the overall view of the market is pessimistic. As prices begin to fall investors and traders begin to panic.
This causes increased selling, which in turn, makes prices drop even lower. The beginning of a bear market is defined as at least a 20% drop over a two month period.
The bear market got it’s name from the way a bear attacks its prey. It swipes downward. What happens in a bear market? It goes down. Hence how the bear market got its name.
When the economy is weak and employment is down, traders and investors lose faith in the market. Rate hikes can also cause the market to drop. Be wary of anything news that causes pessimism.
A bear market has four phases. It begins as the market is at it’s peak. Traders begin to take their profits. Which makes prices begin to fall. As prices begin to fall the second phase begins.
The second phase sees the dropping prices and the negative outlook begins. Hence the panic selling begins. This ushers in the third phase. As prices are cheaper than before, the bulls start becoming enticed.
As buyers start to come back in, prices start to rise along with trading volume. That brings in the the fourth and final phase of a bear market. Prices still drop but the drop slows exponentially. This attracts even more buyers which causes the beginning of a bull market.
BULL AND BEAR MARKET DEFINITION – THE BULL MARKET
The bull market definition is when stock prices are rising and expected to continue. The outlook on the economy is strong and traders are excited about the future.
When unemployment is low and the GDP is strong companies see a rise in profits. The optimism this causes is attractive to traders. They come in and continue to push prices up.
People love to trade in bull markets. Who doesn’t like to see the price of a trade you’re in take off? Most people are more familiar the bull market trading strategies as opposed to bear market ones.
In a bull market losses are usually smaller and only temporary. Supply and demand is the cause of this. When there is a lot of demand but a lower supply then people are more than willing to pay a little more for a good stock.
Hence the importance of volume in the stock market. Read our post on what does volume mean in stocks.
BULL AND BEAR MARKET DEFINITION – TECHNICAL INDICATORS AND PATTERNS
When you know the bull and bear market definition you can use technical indicators and patterns to confirm market moves. In fact, market corrections can be mistaken for the beginning of a bear market.
However, a look at the charts can confirm or deny that. Look at the patterns as well as RSI and moving average lines. The simple moving average formula can be used as support and resistance as well as buy and sell signals.
If the market is overbought, people will be taking their profits. This can cause price to fall. However, it’s a correction and not the beginning of a bear market.
What are the patterns telling you? Do you see piercing patterns or morning star patterns? The tools are there for you to be a smart trader. Learn them and use them.