An investor will always come across the terms bull market or bear market. Phrases such as, we are now entering a bull market period, or the bearish market will soon be over, are common. It is important for the investor to know exactly what the difference is between bull market and bear market.
What is the Difference Between Bull Market and Bear Market
Bull Market Definition
A bull market is a period of several months or even years when prices rise. During those months or years, prices will rise by at least 20%. The term is usually in reference to the stock market, but it also applies to foreign exchange, real estate, bonds, commodities, precious metals, etc.
Bull Market Characteristics
Bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue. At the same time, you need a strong economy indicated by high employment, high disposable income, and high business profits. However, investor confidence is more powerful than any economic indicator. When investors believe something is going to happen ( a bull market) then it will happen.
Is Bull Market a Money-Making Opportunity?
Bull markets present a great opportunity for investors to make money. Usually, in a bull market situation, prices rise across the board. Nevertheless, bull markets do not last forever and they never give notice prior to their arrival. Therefore, the investor must know when is the best time to buy or to sell in order to maximize his or her profits. In fact, the investor must attempt to time the market when a bull market begins and time the market when a bull market ends. Timing the market is imperative for making profits. There have been many examples of people who lost their money because their timing was totally wrong.
What I am trying to say here is the following. Just before a bull market is about to start, an experienced investor goes ahead and invests. When a bull market is about to end, the investor sells and puts his or her profits in his pocket. This of course is very difficult because predicting when a bull market is about to start or to end is not easy at all.
Bear Market Definition
On the other side, a Bear market is the exact opposite with market prices falling for a number of months or years, creating a background of negative sentiment.
Bear Market Characteristics
In a bear market, investors lack confidence, and market expectations are low or negative. A bear market appears after negative economic results, such as high unemployment rates, reduced disposable income, and problematic business profits. Most importantly though, investor pessimism plays a larger role than actual poor economic results.
Can I Lose Money in a Bearish Market?
An investor should have his or her eyes open, to get out of the market before it turns bearish. Investing in a bearish market is out of the question. You will lose your money. Experienced investors get back in the market just before it turns bullish. This way they buy low. This is also not easy at all.
What is the Difference Between the Bull Market and the Bear Market?
The difference between the two is that when the market is bullish you can actually make a lot of money by investing in it because the market is on its way up. The market euphoria will last several months or years and this time will be the best time to invest.
On the other side, a bearish market is when bad economic news and performance take over which results in negative sentiment. The market will take a downturn and you will have to get out of the market or invest in non-correlated assets in order to avoid further losses.
Analysts spend thousands of hours trying to determine what will trigger the next bull or bear market and how long it will last. The basic idea behind investing is to buy low and sell high. This will maximize profits. Therefore, to make money you invest at the beginning of a bull market and sell at the end of a bull market. If we could predict when is the best time to buy or sell, then we all would have been millionaires by now.
I hope my, What is the difference between bull market and bear market article has been of great help to you. If you still have any questions feel free to ask in the comment section.