Bull and Bear Market

The Bull and bear market.

Bull market

Bull market and bear market are used when describing the trends of securities. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies and commodities and other types of investments. Investors can also take a bullish or bearish stance, depending upon their outlook that is when you believe the price will rise or the price will fall and vice versa.

A bull market begins when investors feel that prices will start, then continue, to rise; they then begin buying stocks in the hope that they are right. This belief and the actions that follow cause stock prices to rise again.

Because prices of securities rise and fall essentially continuously during trading, the term "bull market" is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.

The bull market is the type most desired for the majority of investors as Investors make money at any price at which they buy an investment because prices generally continue to rise. During this time, investors generate high expectations regarding the stock market performance, and pool their money readily into this sector. An increasing consumer confidence level, subsequently increasing the cash flow into this sector, allows companies to increase annual turnover, which leads to higher profits to be disbursed among shareholders. If prices fall 10 percent or less, it is considered to be a market correction. At 20 percent, the bull market is mourned by investors as the bear market begins. The same percentages are used when prices begin to rise to announce the return of a bull market.

Bear Markets

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets are often associated with declines in an overall market, individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20 percent or more over a sustained period of time. 

When the bear market begins, investors' confidence collapses, and they believe prices will continue to fall, further reducing prices. Similar to bull markets, stock bear markets can last for years.