All You Need To Know About Bear And Bull Market
In the following articles we are going to analyze what a Bull and Bear market consists of through the operations and psychology applicable to the investor in the stock markets .
We can say that the operation of the bull and bear market is opposite. Bull markets refer to when the economy is performing well. Some events that occur in these types of markets are:
- Existence of low unemployment .
- Gross domestic product (GDP) is high .
- The shares increase their price.
On the other hand, bear markets show an economy that is not being managed properly. Some of its features are
- An unemployment high.
- Low GDP .
- And depending on the sector, a reduced share price .
In general, bull markets tend to last longer and have higher profits than those that can be seen in a bear market.
However, there are not only these two types of markets, but we can also find a third option known as lateral or without trend.
In this aspect, to be able to identify what type of market we are in, a simple way is through different observations.
To do this, we must look at how the ridges and valleys evolve in the graphics. If we appreciate that the lows are getting higher and higher, it will mean that we are in an uptrend. On the contrary, if we observe that the maximums have a downward trend, it will mean that we are in a bear market. These would be the basic characteristics to identify a bull and bear market.
Next we will delve into the development of both markets.
Operation Of The Bull Market
One of the main characteristics of the bull market is that investors tend to anticipate when buying securities, with the aim of selling them later when their price increases.
Therefore, this action begins when the operation begins with a purchase order and ends with a sale.
Regarding the name of ” bull market ” it refers to the concept of “bull” where a comparison is made with investors, referring to the movement carried out by bulls when they attack. In this case, they mean that when they do it they do it from top to bottom, which would be the movement that investors make in this market.
In this sense, and unlike bull markets, in this type of market investors anticipate selling their securities , with the aim of repurchasing them when the price has fallen sufficiently.
This operation would start with a sell order and end with a buy order.
To carry out this operation, the investor borrows securities on which he is going to carry out the operation. Then once he has them he sells it in the market.
In this sense, for the operation to be profitable , the value of the asset must be reduced enough to buy it back cheaper from the sale that I carried out in the beginning. In this way, when it has been acquired again, it is returned to the owner with its corresponding interests. Similar to a loan.
Similar to bull markets, bear markets are compared to an animal. Specifically the bear. Thus it is said that the bear when it attacks it does so with its legs from top to bottom. Hence the simile of selling at a price , to buy it cheaper .
Once we have observed the operations in both markets, we can conclude that, as we have commented at the beginning of the article, bull markets tend to have a greater prolongation than bear markets. This is because the upward trend advances with a more progressive character , while the downward trend tends to be faster and more aggressive.
Investor Psychology According To The Market
At the time of investment, depending on which market we are in, we can find different types of investors .
In the uptrend, when the market is in a situation of expansion, the investor usually has a buying activity towards the assets. In this sense, sentiment reaches a positive view as prices achieve a higher listed price.
One of the dangers that this can cause is the possible formation of a bubble. When this occurs, investors often lose control of their emotions and tend to believe that the price will continue to rise.
Regarding the bear market, investors, faced with a slight drop in price, usually think that it will rise again. As the price continues to decline, investor sentiment will turn negative.
At that time, investors rethink the situation, leading them to the denial phase, where many investors will hold the position waiting to be able to sell and have the opportunity to reduce losses.
Therefore, it will be necessary to take into account some important points related to investor psychology .