The Bear and The Bull

26 Jan

Today, I am writing to help clear up some commonly heard, yet,  misunderstood terms in finance. Most commonly the Bear and the Bull are referenced in regards to the stock market but these terms can be applied to anything that is traded, such as bonds, currencies and commodities.

Bear Market – is a type of market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining

Things to consider: Bear markets rarely provide great entry points, as timing the bottom is very difficult to do. Fighting back can be extremely dangerous because it is quite difficult for an investor to make stellar gains during a bear market unless he or she is a short seller. A bear market has more sellers and lesser number of buyers.

Bull Market -A financial market of a group of securities in which prices are rising or are expected to rise.  A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases capital gains. A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.

Things to consider: It’s difficult to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets. In a bull market there is a low supply of securities and a high demand for the same. This is because few are willing to sell due to the rising trend of the market, expecting it to grow further. As a result, share prices soar high, as investors compete to buy the available equity.

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