Bullish vs Bearish Market – Learning the Basics

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The definition of a market trend is simply the movement within a financial market over a period of time.  Using varying forms of technical analysis, market trends are recognized in order to help predict price in response to the course of the market.  There are three types of market trends:  secular trends, primary trends, and secondary trends.

Secular trends are movements in a particular direction and are characterized as an occurrence that of which are neither cyclical nor seasonal and exists over an extended period of time, usually five to 25 years.

Primary trends are supported throughout the entire financial market, not only segments or sectors, and usually have a duration of a year or greater.

Secondary trends are short term directions in price within a primary trend.  Secondary trends usually last for a few weeks up to a few months.

Within these trends, sectors of the market or the entire market can be classified as showing signs of being either bearish or bullish, meaning the price of securities are rising or falling and will continue to so over a period of time.

Bull Market

In times of a bull market, security prices, once again, in certain sectors or as a whole, are increasing and/or expecting to increase and also show signs of increasing at a more rapid rate than the historic average.

If a market or the market is bullish, investors gain confidence that the prices of securities will continue to rise over an extended period of time and will invest.  Bull markets often occur at times of economic recovery or economic boom and the psychology of investors plays an intricate role in the market.

In order for a market or the market to be classified as a true bull market, technical analysts need to state that there is a rise in the value of the market of at least 20 percent.

Bear Market

In times of a bear market, security prices are decreasing and/or expecting to decrease and also show signs of decreasing at a more rapid rate than the historic average.  In order for a market to be considered bare, opposite of a bull market, prices fall by 20 percent or more.

During times of decline, investor psychology turns to fear and pessimism and traders lose confidence in the market.  Bear markets slow the market down entirely by becoming the driving force behind unemployment and inflation.

What Bullish/Bearish Means for Traders

During a bull market, there is a low supply of securities and a high demand for securities.  Because prices are on the rise, few traders are willing to sell their stocks and share prices rise even further.   The opposite is true for a bear market.  Traders are not in competition due to the effects of a bear market (unemployment and inflation).  But, for some, a bear market, is the perfect time to buy because prices are low and when signs of rising prices show, traders jump at the opportunity to make a higher profit.

Whether the market is bullish or bearish, a key piece of information to remember when investing is buy undervalued and sell overvalued.  If company is strong, ethical, and lead my bright managers and the stock is undervalued, it can be assumed that the share price will rise over time with the company and profits will increase.

Written by the writers @ Finance Mansion.

If you want to take advantage of a bullish market the author recommends you do it with: Plus500, AVAFX & eToro

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