What exactly is a bull or bear market?

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Explanation

Bull markets are described as markets that have experienced prolonged and/or significant growth. Bear markets are described as markets that have seen prolonged and/or significant declines. Everyone has its own combination of advantages and disadvantages.

If you’re looking at bitcoin, bonds, real estate, or some other commodity, markets are often represented as either a bull market or a bear market. Simply placed, a stock market is one that is increasing, while a bear market is one that is decreasing. Since markets often experience day-to-day (or even moment-to-moment) fluctuations, both words are often used to refer to:

 

  • Longer periods of mostly upward or downward movement

  •  Substantial upward or downward swings (20% is the widely accepted figure)

So, what is a bull market?

A bull market, also known as a bull run, is a period of time during which the majority of buyers are investing, demand outweighs supply, market morale is high, and prices are increasing. If you see shares rapidly trending upwards in a particular market, it could be an indication that the bulk of buyers are being confident or “bullish” about the price rising higher, and that could mean that you’re staring at the beginning of a bull market.

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“Bulls” are investors who expect that rates can rise over time. If market confidence increases, a constructive feedback loop occurs, attracting further investment and allowing prices to increase higher.

Since the price of a given cryptocurrency is heavily affected by consumer interest in that commodity, certain investors employ a tactic that attempts to ascertain investors’ trust in a given market (a metric known as “market sentiment”).

What marks the end of a bull market?

And in a bull market, there would be swings, dips, and corrections. Short-term sideways moves may be easily misinterpreted as the culmination of a bull market. This is why, when looking at market behaviour over longer time periods, it is important to view the possible indicators of a pattern turnaround from a wider viewpoint. (Investors with a shorter time horizon sometimes refer to “buying the dip.”)

History has proven that bull markets can not survive indefinitely, and at some stage, consumer trust would begin to dwindle — this may be caused by everything from negative news, such as unfavourable legislation, to unforeseen events, such as the COVID-19 pandemic. A sharp downward price trend will trigger a bear market, in which more and more investors expect stocks will continue to decline, resulting in a downward spiral as they sell to avoid more losses.

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What is a bear market?

A bear market is characterised as a phase in which supply exceeds demand, morale is low, and prices decline. As a result, pessimistic investors who think markets will continue to plunge are referred to as “bears.” Bear markets can be challenging to trade in, particularly for novice traders.

It is notoriously impossible to determine when a bear market will stop and when the lowest price will be hit — since rebounding is typically a long and volatile phenomenon driven by a variety of external factors such as economic activity, consumer sentiment, and global news or events.

They do, however, present opportunities. Over all, if you have a longer-term investing plan, purchasing during a bear market will pay off until the trend reverses itself. Short-term investors may still be on the lookout for temporary price increases or corrections. For more experienced buyers, there are tactics such as short selling, which is a form of betting that the price of an asset will fall. Another technique used by many crypto investors is dollar-cost averaging, which involves investing a certain sum of money (say, $50) per week or month, regardless of whether the asset is that or dropping in value. This spreads the exposure and encourages you to engage in both bull and bear markets.

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Where did these “bull” and “bear” terms come from, anyway?

The origins of this word, like many others in finance, are obscure. However, most people say they are derived from the manner in which each animal attacks: bulls thrust their horns upward, while bears slash downwards with their paws. Of note, there is a long tradition of speculation and proof surrounding the origins of the words. If you’re curious, Merriam-definition Webster’s is a decent place to start.

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