Everything you need to know about bull markets and bear markets.

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Pigs are killed while bulls and bears profit from their slaughter. That is a proverb from the investing world, so why all the "animal talk"? How do bull and bear markets differ?Investors allude to the primary feature of financial markets and the beliefs that investors have about them using animal names. The two most well-known examples of this are probably bull and bear markets. Hawks versus doves is another illustration. What distinguishes a bull investor from a bear investor? Investors who have a bullish outlook on the market and anticipate price increases are referred to as "bulls." An investor who is pessimistic about the market's future direction and anticipates falling prices is referred to as a "bear." These expressions can also be used to describe the sentiment or attitude of the market. High levels of optimism and buying activity are indicative of a bullish market, whereas pessimism and selling activity predominate in a negative one.

Bear vs bull market explained

Bulls and bears have been used in financial jargon since the 17th century. The term "bull" was first used to characterise the stock market on the London Stock Exchange (LSE) in 1769, according to bull vs bear market history. Eight years later, in 1787, also on the LSE, the word "bear" was first used.The way these creatures attack is said to be where the terms originated. A bear approaches from the side and swipes its claws down, whereas a bull assaults head-on by raising its horns into the air. These behaviours resemble how market values fluctuate. In a bull market, prices rise, and in a bear market, prices decline. Equity market benchmark indexes often spend more time rising than dropping, in terms of bulls vs. bearish equities. This is related to the psychological aspect of trading and loss aversion, where traders often panic and sell off rapidly following a market drop.Prices can also simply go sideways, which means they can repeatedly remain at the same level. Due to their higher volatility, other markets including foreign exchange and commodities futures frequently enter and exit bull and bear markets.

What is a bull market? Key characteristics

Bull markets are typically linked to favourable economic conditions and a high level of investor confidence. A bull market has the following crucial traits: rising prices. This is evident in the market, where share prices and the value of other securities are rising. A bull market, according to some investors, is one that has increased by more than 20% from its 52-week low. This indicates an increase in investor confidence as the market is now 20% higher than it was a year ago at its lowest point. This indicates that more people are putting money into the market with the expectation of earning a profit. In general, the economy is doing well. With low unemployment and good growth, this indicates that the economy as a whole is functioning well. the bull market for the Dow Jones Industrial Average (DIJA), a benchmark US index, happens when the price is on an upward trend. 

What is a bear market? Key features overview

Investors may be caught off guard by bear markets since they are challenging to foresee. When investors are compelled to sell their interests at a time when prices are low, this can result in significant losses.While a bear market cannot be precisely defined, it is often thought to start when stock values drop by 20% or more from their peak.What distinguishes a bull market from a bear market?Prices increase in bull markets and fall in bear markets, which is the key differential between bull and bear trading.Other factors, such trade volume and market volatility, are less crucial in determining whether a market is bearish or bullish.

Trading and investing in bull market

Different investing and trading strategies can be employed depending on market conditions, taking into account factors like the market trend and price volatility. Below are three potential options to consider for bull market trading.Note that all investing and trading contains risk. The strategies provided below shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading or investing. Keep in mind that past performance does not guarantee future returns. And never invest or trade money you cannot afford to lose. Buying growth stocks.Another old investing saying is that a rising tide lifts all the boats. This means that it tends to be easier to pick winning stocks when stock markets are going up. In a bull market, stock picking is all about finding the right companies to invest in. That’s why it's important to do your research. Keep an eye on overall market trends so that you can identify which sectors and investing themes are popular and performing well.

Passive investing

Passive investment strategies tend to outperform active ones during a bull market, which is characterised by low turnover, high returns and little volatility. 

Passive investors seek to maximise returns by investing in a diversified portfolio of index-tracking and other exchange traded funds (ETFs). Active investors, on the other hand, seek to beat the market by picking stocks, timing trades and actively managing their portfolios.

The classic asset mix for a passive investor is to use the 60/40 portfolio. This is where 60% of the investor’s assets are in equities and the other 40% is invested in fixed income or bonds.

Trading and investing in a bear market

Investors will tend to need a more defensive strategy during bear markets, making use of alternative.Finding the time that may present the finest long-term investment opportunities may require using various investing strategies as well as accepting the higher volatility.

Trading during a bad market, however, can be very dangerous. Keep in mind that risk is a part of all investing and trading. The methods listed below shouldn't be utilised in place of your own independent research.

Before trading or investing, we always advise doing your own research. This includes looking at fundamental and technical analysis, the most recent news, and analyst opinion. Keep in mind that your choice to trade or invest should be based on your risk tolerance, market knowledge, portfolio size, and objectives. Have a trading or investing strategy in place at all times, using tools for risk control.

Trend observing

Trend followers frequently purchase Sell assets when their value is growing and do the opposite when it is declining. A trend follower is a bull trader when prices are increasing, and a bear trader when prices are falling.

When prices are falling everywhere and other investors are defying the trend and continuing to buy, this method can be profitable in a bear market.

Trading can become more systematic by following patterns, frequently with the use of technical analysis and trend-following indicators like moving averages (MA). Short selling can be used by bear traders to profit from the declining prices.

Of course, there are hazards involved in trend following. A trader may lose money if they dispose of an asset while it is already undervalued losing money despite a price increase.

investing in value

As prices decline to more realistic levels during a bear market, investors can frequently locate the best long-term possibilities. As a result, investors may be able to "buy low and sell high."

Value investors seek out stocks that the market has undervalued and are often prepared to hang onto them for an extended length of time, even during a bear market.

In a bear market, the value of many companies will decline, making it challenging to identify those that are actually undervalued. To win in a bear market, value investors need to be persistent and have a long-term outlook in mind.

substitute investments

if the stock market is performing poorly It might make sense to diversify your portfolio into alternative assets if the market is doing well and there aren't many attractive buying chances. Alternative investments can assist to lessen losses during a bear market, while there is no surefire way to do so.

Alternative investments come in many forms, including FX trading, precious metals like gold and silver, real estate, hedge funds, and private equity. Before making an investment, it's crucial to conduct your research because each has different risks and rewards.