The Bull and Bear market are classic expressions in the traditional financial market which have also been adopted in the cryptocurrency market. The terms are used to denote periods related to the assets’ prices, which may be a share or even a Bitcoin unit, for example.
However, many people still wonder about these nomenclatures, which refer to large animals (bull and bear). With this in mind, we have prepared this article for you to discover once and for all the meanings of expressions and their use in financial transactions. So you will read about:
- Bull market
- Bear market
- Bull market and bear market: how to make money in each of them?
- How to tell if the animal is either a bull or bear?
1. Bull market
The term bull market means a more upbeat market for people who want to invest resources. Interestingly, the term is used for both the economy as a whole and for a specific market, such as real estate or blue chip stocks.
In addition, it involves other related terms, such as bullish (which refers to bull-like behavior), which is used to describe situations in which the market expects prices to rise and applications yield a lot.
Using an animal as a bull to name this scenario has to do with the nature of the animal itself. Its attack is performed from the bottom up, causing the horns to hit the opponent and throw them upwards. This is a perfect metaphor for describing a rising market.
2. Bear market
Here, we have a bear market. Unlike the bull’s attack, the bear tends to attack its opponents from top to bottom, clawing from above. In addition, the hibernation of these animals is legendary. During harsh winters, for example, they sleep for a long period of time.
Thus, the bear market is an expression used to describe a quieter market, unlike what happens during bullish periods. Here we have that situation where the stock prices fall and financial traders “hibernate”.
As with the bull market, there is a related term, bearish. It is used to describe the general economic state that discourages financial operations (such as high rates of inflation and unemployment, declining GDP) or a specific market segment that is currently down.
3. Bull market and bear market: how to make money in each of them?
As we have seen so far, both the bear and the bull represent general trends, which serve as benchmarks for analyzing the market. This means that careful analysis is still required to choose the most appropriate actions, which does not rule out the search for special opportunities.
In the Bull Market, for example, all financial agents (people who make applications, institutions, companies) are more optimistic and want to trade stocks. As demand is high, the price of each paper goes up together.
So, who manages to identify these trends and bets right away has higher chances of making more money, especially if assets are to be sold in the exact moment as the demand curve begins to grow.
Likewise, anyone who identifies that a bear is lurking to appear soon after the bullish period also benefits. This occurs with people who analyze the market carefully and note that certain virtual currencies are rising by mere speculation without concrete reasons.
The famous global financial crisis of 2008, for example, involved an abnormal demand for high-risk mortgage loans (known as subprime), which caused an indefinite default within the United States. Here we have a classic case of a bullish period followed by the bear market.
It is a negative scenario, as understood by its participants. This kind of pessimism is caused by the fear that these papers will be worth less in the future, ensuring a prolonged price drop.
However, it is possible to yield money within this scenario, especially at the end of the bear market, when prices are considerably reduced. That way you can resell them in the bullish period and earn a good income.
In addition, safer investments, such as Treasury Direct investments, yield the interest set forth in the deal, even in downward markets. This way, you ensure a steady income, even if the financial agents are “hibernating” at the time.
4. How to tell if the animal is a bull or a bear?
Analyzing and identifying market trends is essential for those who want to make money on their financial applications. This involves correctly distinguishing between the bull market and bear market. The problem is that this differentiation is much easier to do in retrospect. And that is when the scenarios have already occurred.
Also, it is much easier to identify the situation when you are in the middle of it. This causes precious periods to be lost. Like the one when stocks begin to skyrocket and you have not yet sold your papers.
So if you tie your applications to the trust you have in a particular company, the short-term stock drop may be good news. This is because you have a chance to buy a certain asset for a low price (bear market). And resell it for a larger amount later.
A bear market period can mean wasting a bullish period. You can hold papers (or coins) that won’t be worth much when the situation finally gets cold.
As you might notice, the bull and bear market complement each other and offer interesting opportunities for different investor profiles. When you visit New York City and come across the famous Wall Street bull sculpture, you’ll know how to explain it to your friends.