Financial markets can be subject to various types of momentum. When prices go up, assets are traditionally in a "bull" market. When prices go down, the trend is a "bear" market. However, no market is always either bullish or bearish, as there are also periods of sideways momentum where nothing seems to happen.
Introduction
There is much to learn before venturing into the world of financial markets. Figuring out the jargon is an essential process, with terms like "bull" and "bear" taking center stage. At Cointraffic, we always try to educate readers and clients on these changing market conditions and how they might affect their marketing strategy. It is always worthwhile to explore new opportunities regardless of market sentiment, as it is always a good time to build and expand.
History Of The Terms
The term "bull" traditionally signifies an individual who buys an asset, currency, or commodity and expects a price rise to materialize. Additionally, bulls can make prices go higher due to their investing approach, assuming they generate sufficient volume. Interestingly, the term "bull" was coined in the 1720s during the South Sea Bubble and gained broader attention through a poem by Alexander Pope.
It was around that time the "bear" came into the picture. The bear came before the bull and illustrated sentiment regarding the South Sea Company and its South Sea Bubble. South Sea Company stocks offered up to 100% returns annually, although there were many speculators who sold stock they did not own, triggering an eventual collapse.
One may argue the term "bear" was around earlier, although primarily under the "bearskin" label, which was eventually shortened to "bear" in the early 1700s.
What Is A Bull Market?
A bull market describes a period in which financial markets - stocks, bonds, commodities, cryptocurrencies, etc. - note tremendous consumer confidence. Investment prices tend to rise for more extended periods, primarily due to thriving economies and very low unemployment rates. Bull markets make investors more eager to buy or hold assets, establishing a buyer's market.
It is relatively easy to make money in a bull market, as most assets will note ongoing value appreciation. However, bull markets will not remain in place forever, and the overall momentum will turn around eventually.
What Is A Bear Market?
A bear market is the opposite of a bull market: confidence is low, prices continue to fall, and there is no immediate recovery in sight. Bear markets tend to materialize during times of economic slowdown and uncertainty, pushing unemployment numbers much higher. Investors will prefer to liquidate their assets rather than buy more, enabling them to explore fixed-income securities or cash. It results in a seller's market.
Like bull markets, a bear market can be either brief or extensive. It isn't uncommon to see bear markets last for several years, although the same applies to bull markets.
How to Invest Knowing The Features and Factors of Both Types of Market?
Investing in either a bull or a bear market is not the same. Conditions are very different and warrant rethinking one's investment decisions and approach.
A bull market makes it more feasible to divert more of one's capital into stocks, assets, and commodities. Moreover, one must consider ways to capitalize on the rising prices, primarily by buying low and selling high. Figuring out where the markets may reverse course is essential and often require thorough technical analysis.
For bear markets, there is more potential to sustain a financial loss. While it can prove worthwhile to enter new positions, traders need to be far more careful. Most will favor fixed-income security during these times, although fortune will favor the bold. Those risks may not necessarily pay off immediately, though.
Preparing for either market condition is essential. Trades should always plan ahead and devise ways to make the most of bull and bear markets. Relying on a financial advisor can be worthwhile, as it will reduce the number of trades one makes based on their emotions. Relying on technical analysis can help gauge market sentiment and identify future support and resistance levels for any market. However, one may also consider long-term strategic asset allocation through a diversified portfolio.
Conclusion
When one wants to engage in trading financial markets, it is impossible to escape bull or bear trends. While the bull market makes it easier to make money, a bear market has similar opportunities, even if they require a different mindset. Moreover, a bear or bull market can carry on for weeks, months, or years. It is crucial never to panic regardless of the overarching conditions and never let emotions gain the upper hand.
One golden rule to consider is how a market's past performance is no indication of the future. A long-term investment plan is crucial and portfolio diversification can make the difference between pocketing a profit and suffering financial loss.
Every market trend is an opportunity, and only the brave will weather the storm and come out stronger because of it.