Understanding Stocks: Bull vs Bear Markets
One of the things that makes coming to terms with the stock market so difficult, is the fact that trading stocks comes with a demand to understand a brand-new language, with countless phrases and concepts that you need to learn from scratch. When you've never invested before, then there's no reason for you to understand the meaning of terms like day trading or market correction. However, the more you want to invest in stocks and securities, the more you'll need to expand your vocabulary.
Two of the most common terms that you'll hear as a beginner in the industry are bear and bull markets. Both of these terms can have an impact on how you choose to buy and sell your securities going forward - but what do they mean? Below you’ll find a general understanding of both.
What's the Difference Between a Bear and a Bull?
Both are animals that you probably wouldn't want to anger when you were alone and trapped in a room together. However, the stock market has chosen the bear as its icon for the symbol of fear in the financial industry. Basically, this scenario means that the prices are falling - which is bad news for your portfolio. While thresholds for what defines this situation can vary depending on who you ask, the most common loss is about 20% or more.
While many younger investors are familiar with the concept, they haven't had a chance to experience one for themselves yet. Investors agree that we have been facing a bull market for the last 10 years, since 2009. This scenario is a situation where prices are consistently rising. Currently, we're dealing with the longest run the industry has ever seen.
Where Do Bull and Bear Markets Come From?
The current environment that we're handling today came from the Great Recession. That tends to be how these go. Bear markets like the recession are followed by a period of upturn which creates the bull market, and vice versa. Usually, both signal the start of a much larger economic pattern. If the stock outlook is bullish in nature, then this means that the investors in it are confident and happy - which paves the way for growth. On the other hand, bears suggest that investors are beginning to pull back because of a problematic economy.
The good news for nervous investors is that good environments commonly outlast the bad. That's why even if you get started in the environment when a bear market is rising, you can still grow your money over the long-term using the right stock strategy. The key to success for a lot of long-term investors is knowing how to take advantage when it's in its a hard season, and also knowing when to bow out when things start to get a little bearish.
As you learn more about the concept of stock trading, you'll find it becomes easier to distinguish the right time for trading. For more information it’s always good to consult advice from a professional.