When you get involved in the investing game, you will notice that the terms “bull” and “bear” get thrown around a fair bit. As a beginner trader, you may not understand what they fully mean or why they are important. To be completely clear, it is actually very important that you understand these terms and how to use them. The terms are actually very easy to understand and they are important as they will help describe what you see on your portfolio and how the markets are affecting you.
This article will go into what the bull and bear market are and how they affect you. You should definitely care about these markets as they will help you make decision as to whether you should invest in particular a market. If you’re still interested, continue reading the article.
What Are Bull and Bear Markets?
The ways these terms can be defined is difficult because they may mean different things to different investors. At the core of it, they essentially describe the way the stock market is moving, whether that be up or down. However, as I have stated just now, the use of these terms is also influenced by the subjective thoughts of individual investors. This because investors may feel the market is one or the other, whereas another investor may think differently.
To put the terms as simply as possible, a bull market is a market that is on the increase. The way that this kind of market is defined is through the share prices. Is they are increasing, the market can be called a bull market. In most bull market, this upward trend will be long term and will indicate what the general economy is like at the moment (strong, high employment, etc.).
As for bear markets, the opposites arises. This is where the market is falling significantly and that this trend will also continue over time. In this market, the stock share prices will decreases the economy will be relatively weak. In times like this, companies may be laying people off and unemployment rates will be higher. This can be a good time for short selling.
Why does it Matter and How Should You Use Them?
Knowing the terms in investing is great and help you significantly when you’re trying to make your first trend, but knowing how to use them and why they matter is even more important. When it comes to bull and bear markets, they can drastically help you make a more educated and sure decision.
In the even of a bull market, investors will be investing early so they can ride the share prices up and claim enormous profits. In most cases, the bullish trend will be believed to continue to rise and the losses will be fairly minimal. Essentially, a bull market is the ideal, because an investor can confidently invest in a stock knowing they will profit no matter what happens.
In a bear market, the opposite occurs. Investors won’t tend to go for bear markets because the risk of loss is much greater, if not certain. If you invest in a bear market, the chances are you’ll lose money and you will not be sure when the market pick up again. Some investors will place orders on bear markets in the hope that they’ll go upwards later on. However, this is not always the case. A bear market indicates economic struggle and defensive stocks that are not as affected by the economy will be safer options.
Bull and bear markets are not difficult to understand and knowing about them is very important. If you want to have success in the stock market, you need to understand how bull and bear markets will affect your decision making. If you end up placing an order on a bear market without realizing, you will lose a lot of profits.