The whole business of investing is sometimes tough to understand and it gets harder for novices to get comfortable with all the terminologies that they hear around them. EPS, Dividends, IPOs blah blah blah. But two terms heard more than any of these are a bear and a bull. Now, these two are mixed with a lot more to get better terms like bearish market, bullish market, bear trader, bull trader and a lot more,
What exactly is a bear? Why is the statue of a bull seen in most of the pictures that are related to the stock market? Why is the bear not there but is talked of equally? let us address all of these questions and understand what these two terms really mean.
Bull is an animal, right? Correct. When the bull is in its natural habitat, it will attack the prey or the opponents with its horns and throw them up in the air. The body entitled to this collision sees an upward projectile until it falls down to where it was. This is what the bull market is. The people who are trading in the bull market or an “uptrend” witness growth in their portfolios. The bull-trend can be short-termed, as short as a few hours and its nature is also highly susceptible to the underlying asset.
For example, India stated that to deal with recent price hikes in fuel, it will increase its methanol production. This led to the rise in prices of the most reputed sugar commodity stocks.
These were reputed stocks but a market psyche was naturally created and the fact that the commodities will all see a rise led to the uptrend of a lot of different sugar commodity stocks as well.
This is a classic case of a particular stock seeing a bull trend. The bull market would be when almost all the companies listed on the top indices of a country see a common growth for a common period of time. That is when the traders begin calling them “bull traders” or simply, “bulls”.
The financial markets and their properties of handling the market that runs around commodities, stocks, bonds etc. are hugely impacted by the intensity of confidence people have in them.
The investment prices are sometimes a witness to a consistent rise. This means that confidence is building itself and will likely go up. When that happens, everyone wants a piece of an asset or a security that is making money for the people.
Everyone wants to hold on to that asset and thus, a buyers market is created. If at all history has taught us something is that the bulls don’t run forever. For example, the US market saw a boom after the second world war but saw its doom when the great depression happened.
Interestingly, people made money off of this situation as well and that folds is exactly how a bear market runs. Let us talk about that in detail.
The bear, when attacks, uses its paws to pin the enemy down to the ground and then maul it further. The slap that the bear makes on to its opponent rarely fails and it almost always falls. That is what the bear market is. It will technically slap all the prices and force them to fall down. If you bought an asset and it is seeing a downtrend which you think is more likely to continue, what will be your first thought? Sell, right?
That is what most people think and that is what creates an environment where everyone is selling. Naturally, the demand for the asset gets low and prices fall. Some people use this method for market manipulation. This method is frowned upon generally.
To put it in simpler terms, The bull market ends and the bear market begins when the price of an underlying asset falls more than 20% for a decent period of time. Regular fluctuations are not considered here. Bulls are fueled by the rise in economic growth and the bears are fueled with the fall in economic growth. These are the times of substantial unemployment rates and the investors are looking to sell, rather than looking to buy. This naturally sets the market in the seller’s court.
How to make money in the bull and the bear market?
Making money in the market is ruled by one rule. Buy low and sell high. That is what trading is, was and will remain. To make money in the bull market is easy. Buy an asset, take a stop-loss ( For just in case and always think that that case will for sure happen) and then sell once the target is received. That is an easy deal for everyone.
When the bear market is in the picture, look for some things. Things like dividend income and investments in Fixed deposits can save you from the loss that almost no one can run from. Only people who invest smartly can save themselves from the wrath of a falling market.
Let us understand what are the different options that can save the traders from a bear trend.
The dividend income for a trader comes with the income of the underlying company. If the stock price of the company still holds to a decent price level despite the fact that the people are constantly selling, then that particular company can be a good buying ground for the traders looking for dividend based incomes.
2. Going Short
Going short on certain stocks can be fruitful in a bear market. When you think that a particular stock that is seeing unprecedented growth as of now will fall then, you can make a bet against the market. However, this is a complex process of its own and it requires a good amount of capital. The mathematics that the trader does, plays a crucial role in deciding the fate of this step. Going short can be of huge potential but only if it is calculative enough and has paid off every step where the trader has figured out everything that can go wrong.
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Both bear and bull markets have their own opportunities to make whatever that they can. The whole idea of a market’s psyche is created in the trader’s head while the math differs. It is extremely crucial that the traders decide their strategies based on calculations and precise predictions rather than on what people say will or will not happen.