Bear and Bull Market
Technical analysts believe that stock prices will move in one direction until an important factor stops this and makes them change their direction. This is known as the trend of a market. The stock market is either in a trend, a breakout or a consolidation phase.
The trend refers to when the stock market is moving in one particular direction. The breakout occurs when the stock prices reach a particular price and instead of continuing in the previous trend, the move sharply in the opposite direction to start a new trend. A consolidation refers to when the market is in no particular direction. It is flat without any major price changes.
If the long-term trend of the market is up, we refer this as a bull market. If the long-term trend of the market is down, we refer this to a bear market. The bull or bear market can also be applied to a particular stock. If the price of a particular stock is going up, it is referred to as bullish and bearish if the price is going down. Normally if the price of the market has dropped by more than 20% in two months, it is referred to as a bearish market and the opposite is true in a bullish market.
Most small traders make their profits during a bull market. This is because most small stock investors buy stock to hold for a long period. As such when the underlying market prices are going up, the small investor is also profiting even though he might not know it.
It is possible to make money too when there is a bear market. Experienced traders use a technique called shorting the market, which involves making a profit from selling stocks. Short selling involves selling stock that you do not own with expecting further stock price reductions, so that when you are supposed to deliver the stock, you buy it for less than you sold it. It is only possible when the stock trader can borrow money from their broker.
Bear markets are also a great time to buy stocks at a lower price. The only thing that you have to do is to be confident that the stock market will go up soon and that your stock can withstand a weak economy.
Bear and bull markets are very good indicators of the underlying economy of a country. When companies are making profits, it is usually a result of higher sales. With higher company profits, it means that the stock prices are rising and thus it is a bull market. The opposite is true for a bear market. A bear market is a good indicator of a national economy that is going through a rough patch.
As an investor, it is important to know what type of market you are in. This will allow you to use the proper investing techniques in order to make more profits.
