DIFFERENCES BETWEEN A BULL MARKET VS BEAR MARKET

  • May 1, 2019

Watch our video on bull market vs bear market differences when trading.

The never-ending battle of the bull market vs bear market is one we see played throughout market history. While it's a war that neither side ever truly wins, smart traders win regardless. It's a matter of recognizing the signals and not allowing emotions to dictate trading behavior.

How do you define a bull market vs bear market? An easy way to remember is to think of how bulls and bears attack.

A bull charges, hooks his horns under his target, and throws his opponent high into the air.

Conversely, a bear raises its paw then slams down hard, knocking its opponent to the ground with great force.

These two powerful animals defeat opponents in exactly opposite ways, tossing up and driving down. Likewise, the markets display a continual bull vs bear fight. And emotions play a big role in this.

In fact. we discuss how to trade different markets in our trading room.

bull market vs bear market

Bulls vs Bears

BULL MARKET VS BEAR MARKET

Picture this. Champagne bottles pop all over Wall Street. It's a party every day. Enthusiasm is high. Optimism is in the air. The market keeps rising with apparently no end in sight. Oh, believe me, it will end. It always does, but we'll get to that next.

The GDP is strong, corporate profits up, economy booming, and employment rate high. IPO activity increases, because confidence keeps soaring. Likewise, the market is up by 20%.Therefore, it's a bull market.

During a bullish market, stocks are in demand. Traders feel safer investing because it's harder to lose money in a market that's trending up. However, it's always risky to trade, at least to some extent, since it's difficult to forecast tops and bottoms.

Not recognizing the top of a bull market leads to a lot of traders losing their shirts. Bitcoin investors discovered this in December of 2017 after a sharp rise ended with a steep decline.

There may be such a thing as bull market stocks i.e. stocks that perform way better than normal during a bullish phase. Quite frankly, picking the right stocks when the entire market is going up can be as easy as throwing darts on the wall. Now you see there are so many experts popping up during a bull phase. That’s when most of the “goo-roos” are born.

A notable bull market example began in 1982 and ended in 2000 with the loud dotcom bubble pop. It was a secular bull market, defined as one that lasts many years, even spanning decades.

Conversely, a cyclical bull market lasts a few months, but no more than a few years. The 1982-2000 bull market lasted so long and hit record-setting highs that bulls thought it would last forever. It didn't (bullish vs bearish and how to make money in any market).

bull market vs bear market

​ WHAT IS CONSIDERED A BEAR MARKET?

In a bull market vs bear market, what's considered a bearish market? Picture this. The economy is sluggish with low corporate profits, higher unemployment, and therefore, lower disposable income.

Maybe taxes went up, or the federal rate changed, and investor confidence is down. Pessimism rules the day, and traders sell their shares to avoid anticipated losses. The market goes down by 20%. It's a bear market.

So how long do bear markets last? A secular bear market lasts many years, even decades.

Conversely, a cyclical bear market lasts a few weeks, but no more than several years. However, bear markets typically don't last as long as bull markets.

What signals a bear market? Bear markets go through four phases.

The first phase, the signal, is high prices. Once prices get high enough, traders sell and take their profits.

Then the second phase begins with a sharp drop in market prices due to profit taking. Now, this is where bear market behavior sets in and creates a self-fulfilling prophecy. As confidence in the markets drops, some traders begin panic selling.

Subsequently, the third of the bear market phases begins. Speculators step in. They see stocks at bargain basement prices and decide it's a good time to buy. Therefore, prices climb a bit and trading volume increases.

Then in the fourth phase, prices still drop, but it's a much slower fall. Meanwhile, buyers start jumping back into the market, ultimately leading to the return of a bull market (check out our stock trading basics page).

BULL MARKET VS BEAR MARKET EXAMPLE

A recent bear market example in this bull market vs bear market post occurred in 2007 when the housing bubble popped. From October 2007 to March 2009 the S&P 500 fell from 1565.15 to 682.55. However, the most famous bear market is the crash of 1929 that triggered the Great Depression.

How do you make money in a bear market? Even a bearish market presents trading opportunities. A couple of strategies include Short Selling and Put Options.

If prices go down, then does it always signify a bear market? Not necessarily. It could merely be a market correction.

​WHAT IS A CORRECTION?

Sometimes traders confuse a correction with a bear market. However, a correction is a short-term trend that doesn't last more than a couple of months. Additionally, it's defined as a 10% drop in price from a recent high.

Markets never go straight up or straight down. If a market reaches an unfair high or unfair low, then traders take action. If indicators show an unfair high, then traders sell and take their profits, sparking a correction. Conversely, an unfair low spark buying (check on when you should use a stop limit order vs stop loss).

While a bear market has no discernible bottom, a correction provides entry points. Therefore, a correction offers good opportunities for bargain seekers.

​FINAL THOUGHTS

Which is better, bull market vs bear market? Look, both bulls and bears kill. But those who are trained to deal with these animals report they can be rewarding too... Same as in the markets.

If you’re trained by the Bullish Bears team, both Bull Markets and Bear Markets can be rewarding (to your bank account). It doesn't matter if we are in a bull or bear market if you're trained RIGHT.

So don’t wait, hop on over to the Bullish Bears Stock Market Trading Services page and join our community today to get that RIGHT training. 

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