Anyone investing in the share market has heard of the terms “Bull” or “Bear” to describe market moods. However, not many of us are aware of what to do during a bull or bear phase. Through this articles, we will let you know how to make profits during a bearish market and how you can use certain calculations to predict the bearish market at an early stage. Finally, we will explain the best investment routes you can take for both bull and bear markets.
What is a bull phase?
A bull in the stock market is when the stock prices continue to rise for a sustained time, and the market is having a substantial period of growth with soaring confidence. The market is known to be bullish when this happens.
What is a bear phase?
A bear market is the exact opposite of a bull market. While positives fuel bull markets, stock prices seem to drop for a sustained time in a bear market, affecting the economy negatively. When this happens, there is a bearish market.
How is a bull phase different from a bear phase?
Due to the rising rates of stocks and low unemployment rates in a bull share market, investors and traders are usually keen to buy or keep their stocks for a while, expecting good returns, thus creating a buyer’s market. In the case of equity markets, there is a rise in the company’s shares, and hence, during such scenarios, the country’s economy is usually vital. This positive rise in securities can be accounted for by high earnings in the corporate world or a positive economic outlook.
During a bearish market, the economic condition of a country is considered to be very weak, and the unemployment rates are high. Instead of being keen to buy or hold on to securities, investors want to sell off their stocks as soon as possible to get whatever worth of their money they can or even metaphorically flee to fixed-income securities. It leads to a seller’s market.
Every investor must be aware that sometimes, the market is neither a bull stock market nor a bear stock market. Many small changes often offset each other, leading to a momentum, perhaps caused by short-term market trends, whereas a bull and bear market only occurs over a sustained period.
How do we identify if there is a bull or a bear in the share market?
When the stock price increases by 20% or more from being stagnantly low for a sustained time (or 52 weeks), it is said to have entered a bull phase. When a stock decreases by 20% from its peak (or a 52-week high), it enters the bear phase.
It is important to note that not every 20% rise or fall can be determined as a bull-bear stock market because market fluctuations of even 20% can be termed a market correction (if there is a sudden fall after a steep rally) or a pullback rally (if there is a sudden rise after a steep fall).
So, here is another, perhaps a more accurate way of identifying a bull share market or a bear share market:
A bull market is when the 50-day moving average of the index crosses the 200-day moving average of the same. This is also known as the Golden Cross.
On the other hand, a bear market is when the 50-day moving average of the index falls below the 200-day moving average of the same. This is also known as the Death Cross.
Like everything else in nature, nothing lasts forever; neither the bull market runs forever nor the bear market.
How long does the bull market or the bear market last?
Even in the bull market, there will be corrections, dips, stagnations, and fluctuations along the way, which can be easily mistaken as the end instead of just a short-term trend. As witnessed in the past, we know that anything that could affect buyers’ confidence could lead to the end of the bull market, even unforeseen circumstances such as Covid-19.
It’s hard to determine when the bear market might end and when the lowest price for that bear run has been reached. This is because the constant rise is a slow and unpredictable process depending on various factors like global climate and investor psychology.
How to make a profit even during a bearish market?
A bear market, even with its downfalls, can also provide opportunities. For example, if you are in it for the long-term game, buying during a bear market can pay off when the cycle reverses. Even if you are looking for short-term gains, there are always temporary price spikes or corrections. Various strategies depend on your investment goals, such as short-selling.
There is always a way in each market, and a good trader knows how to ride out the bull and bear market waves appropriately.
Should I start SIP in the bull phase or the bear phase?
A systematic investment plan allows investors to trade more rigorously. A SIP started in the bull phase will give better returns in the long term as the net asset value will average on the upper side when new units are bought, whereas the opposite happens in the bear share market.
Interested in how we think about the markets?
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