Bull Market vs. Bear Market- What is the Difference?
When it comes to understanding today’s complicated stock market, many times the best way to start is to begin with the basics. Before you can dive into more complex terms and meanings, it is important that every investor, at every skill set or level understands the difference between a bull market and a bear market. Chances are you have heard these terms before, or heard someone be described as a bullish investor or a bearish investor. Before you can move any further into the world of investing, it is essential that you know about these two competing philosophies as this insight may help you develop the right trading strategy to fit your own personal needs.
The Bull Market
Let’s start with the bull market. When trading in a bull market, there is an underlying assumption that all stocks will continue to rise in price. The name comes from the concept that a bull thrusts its horns up in the air to attack, and is used as a metaphor for the movement of a market. Bull markets are often considered to be more optimistic and reflect confidence among stock owners as they expect their stocks to go upwards. If the trend is up in the market, it is a bull market. If someone is acting bullish they are investing with the intentions that their stock is going to go up.
The Bear Market
The term bear market was coined because bears swipe down when attacking their prey. A bear market is defined as a market where the prices of stocks are falling. This type of market is typically seen as one that involves more pessimistic investors. Typically, when the market is experiencing a downturn of 20% or more over at least a two month period, it is considered to be a bear market. It is important to note that there is a difference between a bear market and what is known as a correction. A correction is a short term down market, not one of two months or longer. The market is always changing so it isn’t always a bull market or always a bear market. You can be a bearish investor meaning you tend to invest when stocks are going down.
Knowing the difference between a bull market and a bear market and whether or not you tend to invest in a bullish manner or a bearish manner can help you develop your own unique investing approach. No matter which of these two approaches you tend to take, knowing the difference and what each market entails can only help your build your investing savvy in today’s ever-changing market.