Bulls and bears are two completely different animals in all aspects, but one - they both attack. This, however, doesn’t answer the question that comes every time you see these animals as descriptive terms for market movements. Bull vs. bear market is the first thing you should learn before you start thinking about investing.
Understanding the differences between these two markets means knowing the best and the worst time to invest, and it means beginning to understand market predictions. It all starts with knowing how each of those animals attacks.
The attack strategy of bull vs. bear is very different. While bulls charge their horns and push their opponent ahead - the bear will use its claws to bring its opponent back. Traders use this difference to make a metaphor to describe two phases of the market - one with a series of upward movements and the other with a series of downward movements.
To elaborate on these two market phases, we made this article where we dive further into the difference between bull vs. bear market, as well as the best time to invest and the trading strategies that each entails.
Let’s be clear, a bull market is, as this animal’s attack strategy suggests, the market in which everything goes ahead. It is, broadly speaking, the time of price spikes, increased economic activities, high returns, and increased demand. You can say it is a bull market when a broad stock index rises 20% over two or more months.
On the contrary, a bear market is characterized by pessimistic consumer sentiment and decreasing prices. If the market falls by 20% or more from the peak and stays down for at least two months, we’re talking about a bear market.
The question of bull vs. bear market is about consumer sentiment, and everything else follows. In the bull market, the consumers are optimistic about their future, so they spend more money and increase overall economic activity. Increased economic activity brings more demand for essential and non-essential goods and services.
More demand makes the prices go high, which motivates companies to make more supply. For that, they usually need more workers. The country’s GDP goes up, and interest rates climb. However, this all has to end. It usually ends when inflation makes the prices too unattainable, and pay raises cannot compete with them.
That is when the market starts slowing down and slowly becomes bullish. The bull market starts when consumers become pessimistic, usually due to a combination of high prices and high interest rates. When people become pessimistic about their economic future, they tend to spend less. Less demand makes the prices drop.
Less demand also means that employers don’t need that many workers anymore, so employment starts to go down. Countries decrease their interest rates in an attempt to make people invest and spend, to keep the economy going. If the market is healthy, price and rate drops make people want to spend, and the circle continues.
The forex market is far from immune to bull/bear changes. However, they affect it in a different way. As the value of a currency depends on the global demand for that currency, a small weakness in the national economy can lead to a major demand loss and, therefore, a major value loss.
Nevertheless, forex trade is always done in pairs - the ideal situation is to sell the currency whose decline you’re predicting but has not yet happened - and buy a currency for which you believe the value will go up.
Forex trends suggest that safe haven currencies, such as the Swiss franc, US dollar, and Japanese yen, all lose their value during a bull period. This maybe sounds illogical, but it makes sense - when the times are rough, and national currencies lose their value due to inflation, people buy safe haven currencies.
When the times are good, there is no need to save in dollars when you want to have your money available for spending. Nevertheless, the bull market tends to increase the value of some already strong currencies, such as the Australian dollar, New Zealand dollar, and Canadian dollar.
Usually, you would want to invest right near the end of the bear market or at the beginning of the bull market. The time for selling the shares is right before their value starts falling down. You might think: “Well, duh!”
This, however, is not easy to predict. You never know for sure, when the value of stocks drops, if it is a temporary correction or a beginning of a bearish market. Investors have their market analysis methods, depending on whether you are looking to invest long-term or short-term. Nevertheless, people prefer investing during the bullish period.
The bull vs. bear market competition transfers to investment methods - bull investments are usually long-term, while bullish investments stay short-term. That is because people don’t want to risk too much during the time of recession.
Buy-and-hold method and retracement are the most popular investment methods during the bull market. Buy-and-hold is when an investor buys shares and keeps them until they reach their peak. There is a more risky version of buy-and-hold, and it is when you continually buy shares as long as they climb. On the other hand, retracement additions lean on a somewhat risky concept of market corrections.
A market correction is a short-term downward adjustment of the otherwise hot market. It should not be confused with a bull market because it provides quick relief from price jumps and allows investors to get on board.
Retracement addition is a method of investing in which you target market correction periods to buy stock. Once the correction is done, the prices continue their incline. Essentially, by using the retracement addition method during a bull market, you bought the stocks for a discounted value.
Bull vs. bear market - where are we currently? This question gives headaches to many experienced traders and economists alike. When the interest rate spikes started in early 2022, the sentiment started falling and reached the bottom in June.
Since then, it has climbed back up, but many professionals are not ready to declare whether we are living in bullish or bearish times - we are somewhere in the middle, it seems.
When it comes to the forex market, you are always exchanging money for money. When you look at two pairs and check the movements in the previous days, as well as the history of volatility - it is easy to proceed with a trade.
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