Bull vs Bear Market: Definition and Comparison Guide
Adam Fayed
Managing Director - adamfayed.com - helping expats and high-net-worth individuals
Investor behavior is greatly impacted by bull and bear markets, which are largely triggered by shifts in economic backdrop?and market sentiment.
For those who aren’t yet aware and aren’t quite familiar with these terms, I’ll explain in this post what is a bull vs bear market, how they shape investor confidence, and which condition or trend is better for assets acquisition.
Bullish and Bearish Market Definition
Bullish Meaning
A bull market happens when there's a prolonged surge in?prices of assets, usually by at least?20%?from their?latest low.
Growing GDP, increased confidence among investors, and falling unemployment are frequently observed during a bull run.
There are certain factors that drive these upward trends, as per Forbes. These include:
Bearish Meaning
A bear market (downward trend) occurs when the price of stocks slump?for a long period, also?by 20% or more from the previous peak.
Substantial asset liquidations, a deteriorating economy, and general investor gloom are all frequently linked to a?bear run.
Bull vs Bear Market History
There have always been bull and bear market trends in the realm of finance.
Forbes estimates that since 1957, there have been 12 bull markets, with one beginning about every five and a half years.
In the nearly five years since 1957, the typical bullish?market has reportedly produced an average return of over 169% for the S&P 500.
The first year after the last bear market bottom has historically seen the strongest performance from bull markets, with average returns of almost?42%.
Although an uptrend can be seen as a very positive thing, it is important to remember that if the excitement that comes?along with it becomes overly euphoric, it can cause a stock market bubble to inflate.
Forbes said there have also been 12 bear markets since the 1957?debut of the S&P 500 index. This includes the 1990 bear run in which the benchmark index slid almost 20%.
Bullish vs Bearish Candlestick Patterns
Bullish candlesticks signal traders to choose a long position. They indicate that prices will climb.
These patterns, which suggest a possible reversal of price action, often emerge following a market decline.
Naturally, bearish candlestick patterns are the opposite. They indicate that prices are going to fall. They emerge toward the conclusion of an upward trend.
Bullish vs Bearish Divergence
Although it doesn't always indicate a total trend change, a divergence indicates that the market is losing steam. There may just be a pullback instead of a?total turnaround.
Bullish divergence shows that albeit prices are?falling, buyers are becoming more dominant while the selling impetus is waning. It can indicate a possible upward trend.
Meanwhile, bearish divergence is when sellers are getting stronger, buying force is declining, and price is rising. It can point to a possible downward market.
What is an engulfing pattern?
In trading, it’s a candlestick pattern that can either be bullish or bearish, and respectively signals buyer or seller power.
As?they can indicate a trend?shift, engulfing patterns are significant in both bull and bear?markets.
Key Differences Between Bull and Bear Market
Bull Run
·?????? Investors are upbeat?about making investments.
·?????? The value of assets rises steadily and usually hits new records.
·?????? This trend usually happens in a robust economy.
·?????? The unemployment rate is often low or falling.
·?????? A great deal of buying and selling is often observed.
Bear Run
·?????? The prices of assets are continuously declining.
·?????? Investors may lose interest in investing amid the risky environment.
·?????? This market usually happens in a sluggish economy.
·?????? The jobs sector is depressing.
·?????? Purchasing and selling activities are quite low.
Is it better to buy in a bull or bear market?
Bull markets are deemed as relatively less risky time to invest. Asset values are growing and prospects for selling higher than what you originally paid for are also greater.
There is a lot of confidence and interest among investors, while businesses exhibit impressive performance outcomes.
Buying at peak prices is also not good, however, particularly if a market correction soon follows. Besides, not all options are good to invest in during an uptrend as some also lag the overall market or even slip.
Albeit short-term risks are higher during bear markets, investors have the chance to acquire assets at a discount since pessimism lowers prices. A longer-term strategy could be workable and yield profits.
But note that it’s easier to lose money during a downtrend, especially if you don’t know what to do next.
Stepping on the sell button due to panic won’t do you good, nor will staying invested when you should let go.
In the end, whichever market is good to buy in will depend on your investment strategy and risk tolerance, and the financial plan you intend to execute.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me ([email protected]) or WhatsApp (+44-7393-450-837).
This includes if you are looking for a second opinion or alternative investments.
Some of the facts might change from the time of writing, and nothing written here is formal advice.
For updated guidance, please contact me.