If you are starting in trading, understanding what a bull market and a bear market is will be your ally to begin on the right foot in the financial markets.
Let’s start by explaining how it works. When a market, instrument, or sector tends to rise, it is called a bull market. In this case, purchases are the dominant operations.
On the other hand, if the market is sustained on a downward trajectory, it is called a bear market. Bull markets are often related to optimism and investor confidence. The market is influenced by positive news. At the same time, the market does not attend negative news.
How to identify a bull market
This bull market can apply to various financial markets, such as commodities, stocks, currencies, or indices. A majority trend can reverse a bull market, often due to a clear negative outcome. Low income or flat financial figures can affect the market. Because of this, it is difficult to determine when in a market, the uptrend can begin or end.
A bear market has a sustained downward trajectory over time. It happens when investors do not feel very optimistic about the rise.
In a bear market, negative sentiment takes hold of investors, and the downtrend only gets worse. It is due to the pessimism throughout the market. While the coronavirus pandemic caused the most recent bear market, other historical reasons have included oil price movements, investor speculation, irresponsible lending, etc.
When the opposite happens and optimism reigns, it makes the market go higher and higher, and we get a bull market.
Analysts and investors frequently debate how sustained and dramatic a market decline can be to consider it a bear market.
Since world war second, bear markets have lasted 14 months. Meanwhile, market corrections have lasted five months on average.