Difference Between Bull and Bear Market

If we refer to the bull and bear market history, we will notice that these phases have come alternately in the global stock markets. This means that a sharp run up will be most probably be followed by a downfall in the stock market. In such situations, understanding what is a bull and bear market clearly assumes great importance. Let us first know what is a bull market in the next section.

Bull Market Meaning

A bull market exists when the market sentiments are extremely positive and so is the investor confidence. In a bull market phase, investors buy heavily and also get great returns on investment in a very short period of time. This rate of return is generally very high as compared to the return received under normal conditions. In a bull market, we often observe stocks of companies with poor fundamentals going up just on the basis of increased buying interest. While the chances of these stocks stabilizing at higher levels are remote, the fundamentally sound stocks do manage to sustain their gains for a long period of time. A bull market phase sees newer market highs because of improved and strong corporate earnings which are the main drivers for this growth. The increased investment by foreign investors into stocks obviously raises their values on stock exchanges and makes the profit for investors. It is very difficult to state how long the bull market period can last. However, a retail investor can think of booking his profits at a point when valuations of individual stocks appear too stretched. Stock investing or stock trading in quality stocks with proven track record of performance and consistency in earnings should be the strategy which you must follow in the phase of a bull market. Now, in this discussion on what is the difference between a bull and bear market, let us know more about the bear market trends in the next section.

Bear Market Meaning

While we talk about the bull and bear markets, we must understand that the bear market trends are exactly opposite to that of the bull market ones. The bear market involves heavy selling from domestic, retail as well as big institutional players because of a fear of bigger downfall in the stock values in the days to come. In short, the sentiments are negative because of the question mark on future growth of world as well as domestic economies. Very few people actually have the courage to buy stocks in a bear market even if they are available at very attractive prices as compared to their pieces at all time highs. The financial results posted by companies are quite below standards in this phase, due to less sales and pressure on the profit margins due to rising costs. Judging exactly when a bear market will start is very difficult for common investors. Instead of waiting for the announcements by experts, one needs to track the market properly and get out of risky stocks before they make you suffer from big losses which are difficult to recover from. Some suggestions for bear market operators include avoiding the temptation of investing in penny stocks and reducing your overall exposure in the equity markets till things stabilize and the markets are back to normal.

Hopefully, this article has provided you with enough information on difference between bull and bear markets in a systematic manner. Consulting experts before making any actual investments would be another suggestion to avoid unnecessary losses. Think over it and take the right decisions. All the best!

DISCLAIMER: This article is just for reference purposes and does not recommend any stock market transactions.