Bull vs Bear Market

Bull vs Bear Market Guide

17 min read

Bull vs bear market differences? A bull market is when the price of a stock or the market rises over some time. A bear market is when the stock market or price of a stock falls. The bulls try to push the market up while the bears short or push it back down. The market is a constant tug-of-war between the bulls and the bears.

Furthermore, why are we referring to the stock market as it resembles these scary animals? Well, let me explain. The use of ‘bull’ and ‘bear’ to portray market conditions stems from how these animals attack others.

A bull drives its horns upwards, while a bear usually swipes its paws toward the ground. Figuratively, these actions denote the movements seen in most markets.

Chart by TradingView

A bull vs bear market describes periods of growth and decline, respectively. While there’s no set way to identify either situation, they’re usually associated with price fluctuations that span or exceed a 20 percent range.

They also coincide with different phases of the macroeconomic cycle. Specifically, a bull market signifies imminent expansion in the economy. Typically, we see a rise in public confidence and general optimism in the market.

Investor appetite for securities increases, leading to a surge in stock prices when supply shrinks. This may happen even before the broader economic indicators, such as GDP, grow.

Public sentiments aside, bull markets are also the result of a thriving economy. With a flourishing economy, we see high employment and, more significantly, large disposable incomes. A rise in corporate earnings can also usher in a bull market. Click here for our live trading room, where we discuss bull vs bear markets and how to trade them.

History of Bull vs Bear Markets

A bull vs bear market describes periods of growth and decline, respectively. While there’s no set way to identify either situation, they’re usually associated with price fluctuations that span or exceed a 20 percent range.

They also coincide with different phases of the macroeconomic cycle. Specifically, a bull market signifies imminent expansion in the economy. Typically, we see a rise in public confidence and general optimism in the market.

Investor appetite for securities increases, leading to a surge in stock prices when supply shrinks. This may happen even before the broader economic indicators, such as GDP, grow.

Public sentiments aside, bull markets are also the result of a thriving economy. With a flourishing economy, we see high employment and, more significantly, large disposable incomes. A rise in corporate earnings can also usher in a bull market. Click here for our live trading room, where we discuss bull vs bear markets and how to trade them.

Perhaps the most notable instance of a bull market in stocks is between 1990 and 2000. Stock prices rose to a whopping 417%, with just a correction exceeding ten percentage points.

And with a life of more than a decade, it was twice as long as the average bull run of the post-WWII period. Conversely, a bear run implies a widespread and sustained downward trend.

Because markets are characterized by cyclical rises and falls (as highlighted earlier), the generally accepted threshold is a price decline of 20% from a peak, which lasts for two or more months.

Simply put, it’s a downward move for at least two months. 

Bull vs Bear Market

Factors That Cause a Bear Market?

But what causes the decline in the first place? Bear markets are often the result of a weakening economy.

When business profits drop, shareholder earnings take a hit, and so do employment opportunities. The diminishing spending power could force investors to start selling assets, thereby triggering a price fall.

Speaking of, a bear run can also result from a speculative bubble. Once people realize that assets are priced higher than they’re worth, a massive sell-off is inevitable. Combine that with the general unwillingness to buy, and what you have is a recipe for a market crash.

Such was the case during the dotcom bubble burst, one of the more (in)famous examples of a bear market. For years, dotcoms – or rather, tech companies- had been hyped as sure stock market trading winners.

But as the new millennium dawned in, it became apparent that most of them wouldn’t ever break even, let alone make a profit.

And so, share prices of dotcom stocks lost over 80 percent of their value. Elsewhere, delistings and bankruptcies contributed to 13-figure losses on investors’ portfolios.

It would take a decade and a half for tech-heavy stock markets to return to their pre-2000 peaks.

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What Is a Bull Market?

What is the difference between a bull and a bear market? Simply put, bull markets are characterized by a strong, aggressive upward move over some time.

When the market starts to rise, people get excited – somewhat irrational, and pour more and more money into the market. Prices start to rise, and boom, the domino effect starts. Enter the asset bubble.

You see bull markets and asset bubbles occurring with stocks and other investments such as bonds, commodities, and housing.

There can be several factors that can cause a bull market. However, two that come to mind would be a strong economy and high employment levels.

Just like the economy and job growth simulate a bull market, the opposite spurs a bear market. And as you know, with bubbles, eventually they all burst. And the stock market is no exception. When the bubble bursts, prices fall, and they fall hard. If they fall 10% or less, it’s simply a market correction.

But most experts agree if the fall is 20% or more, it’s a bear market. When that happens, people get scared and either stop investing in the market altogether or panic sell and pull all their money out. Both scenarios have dire consequences.

Bear Market Example

Bear Market Example

This is an example of a bear market on the $SPY, which lasted for several months.

1987 Bear Market Crash

One of the most famous examples of a bear market is the 1987 market crash, which saw a 29.6% drop that lasted roughly three months. Fast forward to 2007-2009, when we saw the value of the S&P wiped out by 50.9%.

Coupled with the crisis in subprime mortgages, this snowballed into a full-blown financial crisis. Knowing the difference between a bull and a bear market helps you understand when we’re in a bear market as opposed to a market correction.

8 Key Differences Bull vs Bear Market

There are eight key differences in knowing the difference between a bull and bear market. The main thing to remember is that an overall general sense of optimism characterizes a bull market. And it’s this optimism that tends to catalyze greed, resulting in positive growth.

A bear market is associated with uncertainty, which tends to instill fear in the hearts of stockholders. In light of these differences, let’s break them down further:

1. Market Direction

It’s a bullish market when performance is on the rise. On the other hand, a bearish market is when the performance of the market is on the decline. The most cut and dry answer to what is the difference between a bull and bear market.

2. Investor Outlook

In a bullish market, investors are very optimistic, and this is reflected in investors taking long positions as they feel prices will rise further. Conversely, in a bearish market, the market sentiment is quite pessimistic and reflected by investors taking a lot of short positions. However, it is important to realize short selling is also a great opportunity to make money.

3. Economic Growth

During a bullish market, you will see substantial economic growth. On the contrary, the economy in a bearish market will either fall or not grow at all. A key point to remember is an indicator like the GDP (Gross Domestic Product) will give you a bird’s eye view of how the economy is performing based on the existing factors.

4. Market Indicators

The market indicators are very strong in a bullish market and vice versa in a bearish market. Take the market breadth index, for example. It is an indicator measuring the number of stocks increasing versus those falling.

If the index is greater than 1.0, this indicates a future rise in market indices. On the other hand, if the index is below 1.0, it means a future decline. It comes as no surprise, then in a bearish market, the market indicators are not strong.

5. Liquidity

In a bullish market,  we see much liquidity flowing into the market. This is largely due to investors actively pumping more and more funds into the market. That, coupled with increased trading activity and investing in stocks, gold, real estate, etc., results in a bull market.

Nonetheless, in a bearish market, the liquidity dries up, and the investments made during a bullish scenario are either sold, preventing further downsides or held back. Keep an eye on vwap when intraday trading.

6. IPO Activities

Typically, they are encouraged in a bullish market because the market sentiment is positive, and people are willing to invest their money. 

7. Interest Rates

Banks often reduce interest rates on loans to encourage businesses to grow. But, during a bearish market, we typically see the interest rate increase to curb the use of money. 

8. Yields

When we’re in a bullish market,  yields on securities and dividends will be lower than those of a bear market. We want higher yields and dividends in a bullish market to lure investors in with the promise of higher yields later.

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Are We Currently in a Bear or Bull Market?

The stock market has been up and down quite a bit in 2020. It started strong and then dropped enough to be considered a bear market. It has been trying to move up since March, however. Based on the chart below, it’s been trading sideways since the end of March. Hopefully, it will soon choose a direction, whether up or down.

How Long Do Bull vs Bear Market Runs Last?

Sources within the finance industry indicate that bullish runs typically last five years (as noted previously), while downturns last about 1.3 years on average.

Others have further suggested that boom periods exceed their opposites in every other respect (frequency of occurrence, degree of change in value, etc). And when you discount a few exceptions, you’ll find that the two states tend to leapfrog each other in succession.

That’s no surprise, given that nothing lasts forever. Even in the most favorable climate, sustaining growth indefinitely is impossible.

Likewise, downturns will tend to reverse themselves no matter how rough the ride gets. Check out our online courses to learn how to trade a bull vs bear market.

Bull Market Example

Bull vs Bear Market Chart

This is a bull market example on a chart of $SPY.

Buy Low and Sell High

Conventional wisdom suggests that buying low and selling high is the best way to profit from stocks. But that’s easier said than done.

Markets are notoriously difficult to predict over any horizon. More often than not, bullish and bearish phases are recognized long after they’ve set in. Cutting to the chase, you’re better off investing whenever you have funds available instead of trying to pinpoint an opportune moment. That requires a smart strategy — you want to ensure you can survive bearish phases and expand your position when things change for the better.

But let’s start with the rosy side of the scale. Investing during a bull run means buying stocks when prices are nearing their highest levels. That does sound hefty, but you can make things easier by taking advantage of short-term price falls. Your best bet is to focus on high-quality assets (i.e., stocks in firms with steady revenue sources and reasonable debt levels). Utility providers and real estate companies are but a couple of examples here.

And so comes the tricky part: Singling out prudent investments in a gloomy market. For starters, note that a bearish run doesn’t affect the fundamentals of any particular organization.

Bull and Bear Market Cycles

The trick is knowing how to trade in any market without letting your emotions affect you. Hence the need to know a bull and bear market definition. 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.

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.

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.

Technicals 

Knowing the bull and bear market definition, you can use technical indicators and patterns to confirm market moves. 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 and buy and sell signals.

If the market is overbought, people will be taking their profits. This can cause the 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.

Examining individual companies will allow you to find high-value stocks that have only dropped due to shareholder panic. Just don’t put all your eggs in one basket — spread your holdings across a wide range of sectors to be on the safe side.

This may surprise you, but money can be made in both a bull and bear market. Yes, you read that right, both types of markets. Many traders and investors love picking up cheap stocks because they know the market won’t stay low forever.

Final Thoughts - Bull vs Bear Market

In conclusion, whether it is a bear market or a bull market, do exactly the opposite of what everyone else is doing. And what you DO matters!

In the words of Dale Carnegie, “Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit at home and think about it. Go out and get busy.”

Better yet, why don’t you get busy with us? At Bullish Bears, we will help you take the first step to achieving your goal of financial freedom. Our online trading 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 when you know the difference between a bull and a bear market definition. Results come to those who “act,” don’t wait, do it now! 

If you need more help, take our online trading courses.

Frequently Asked Questions

The longest bull market on record for stocks occurred between 1990 and 2000. Not surprisingly, it also provided the highest returns, as measured by the S&P 500. This period saw stock prices rise by a shocking 417%. The bull market is coming in at a close second from March 2009 to the present. As of December 2018, returns closed in at 295%. To put this into perspective, the average return of all bull markets since 1932 has only been 165%.

Stock market experts consider falls of 20% or more over two months or more to be a bear market. They consider falls of 10% or less to be a market correction. They usually use the S&P 500 as a guide to determine whether the overall market is bullish or bearish.

There’s no steadfast answer to how long a bear market will last. It depends widely on the situation and what is happening in the economy. The Coronavirus of February 2020 has just started, so we will see the impact moving forward. It can sometimes last for just a few weeks, months, or even years. The two nastiest bear markets happened in 1929 and between 2007-2009. If you noticed, these would be in sync with the recessions. The worst of them was the crash in 1929, which lasted 2.8 years and saw a loss in value of 83.4% from the S&P 500.

More Frequently Asked Questions

What is the difference between a bull market and a bear market? A bull market means the price is in an overall uptrend. A bear market means that the price is in an overall downtrend. Bulls try to push prices up, and the bears try to push prices down.

Yes, you should, but only if the setups are good and you see reversal patterns! The #1 Rule of investors: act opposite of the investing public; take advantage of fear and greed. Buy when there's fear. Be like a guerrilla soldier and strike quick and fast. Find those quality stocks at rock bottom prices, swoop in, and buy them. When the market turns around, sell them to the greedy buyers when the prices rise.

A bear market is when the stock market has lost over 20 percent in over at least a three month period. A bull market is when the stock market is in an overall uptrend over the course of months or years.

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