Bull market and Bear market

Bull market is the condition of the market when prices soar. It can be applied to stock market, bonds, real estate, currencies, and commodities. They tend to last for months or even years. A bull market is termed when stocks rise by 20 percent after two consistent declines of 20 perent each. To make profit off bull market, traders buy and hold some of the stocks.

To take advantage of the situation, one has to buy early and sell them when they reach their peak. A strong production rate, high employment, rising GDP suggest the effects of a bull market. Low interest rates and low corporate taxes too are a good sign of bull market.

Throughout history, the bulls in the US markets have had some great runs, starting with the boom after World War II that exceeded the market’s peak before The Great Depression. Since that time, the market has experienced a series of bull markets, including the longest one from 2009 to 2019, which was on the heels of the collapse in the US housing market.

Bear market

This is the opposite of a bull market; it’s a bear market when the market experiences decline and the prices plunge. It can be cyclic or long-term. Short selling, put options and inverse ETFs are the ways for an investor to make money on a bear market. Bear markets have 4 phases.

Bear markets may accompany economic crash like recession. On bear market, investors are more risk-averse than risk-seeking and paving way for speculations Low employment, low disposable income, low productivity, loss in business and any intervention by the government can trigger a bear market. On a bear market, investors sell off their maximum shares to avoid losses.

Instead of wanting to buy into the market, investors want to sell, often fleeing for the safety of cash or fixed-income securities. The result is a seller’s market.

Bear markets can last from a few weeks to several years. The first and most famous bear market was The Great Depression. The dot com bubble in 2000 and the housing crisis of 2007–2008 are other examples.

Because there are many differences between bull and bear markets, the way you make investment decisions varies greatly. Having a higher allocation of stocks is optimal in a bull market, where there's more potential for higher returns. One way to capitalize on the rising prices of a bull market is to buy stocks early on and sell them before they reach their peak. In a bear market, where there is more loss potential, investing in equities should be done with great prudence, since you are likely to incur a loss — at least initially. In preparation for a bear market, it may be wise to direct your money toward fixed-income securities.