Difference Between Bearish and Bullish Market

Author: George Davis

A bullish market represents an uptrend, while a bearish market signifies a downtrend. Understanding both market conditions is essential for making better investment decisions. Read this article to learn more about the difference between a bearish and a bullish market.

As a seasoned trader or just a light observer of the financial market, you have probably come across the terms “bearish” and “bullish” market. But most beginner investors are not aware of these terms, and they fail to continue their journey to becoming successful. After all, these terms are primary jargons of the stock market, and understanding them is crucial. But what exactly do market speculators mean when they say “bearish” or “bullish” markets?

In this article, we will uncover the difference between bearish and bullish markets and explain their basics to help you get started with your trading journey. So keep reading below to enhance your knowledge about the stock market.

Difference Between Bearish and Bullish Market

In the investment world, the terms “bearish” and “bullish” represent market conditions. These terms are the direct opposites of each other, and they signify where the market is headed. It is essential to learn about the stock market’s direction as an investor because it’s a major force influencing trading decisions.

Bullish Market

The term “bullish” is derived from a raging bull that moves in one direction without any limitation until it stopped in its path. When the stock market is in an uptrend, meaning the share price of a particular company or the stock market as a whole is increasing, market speculators will call it a “bullish market.” The rising market condition is unpredictable when it reaches a certain point, and a decrease is imminent.

A bullish market condition arises when the economy is generally favorable. As the interest rate drops and income levels rise, the general public is interest in investing their savings in the stock market in the form of shares. When the general public starts investing in the stock market, the economy booms and reaches a point where it must come down to control the money supply. This is the point where a “bearish” market starts to form.

Bearish Market

When the interest rate is increased to control the money supply in the economy, it restrains retail investors (the general public) from investing in the stock market as businesses make fewer loans and expansion activities become limited.

However, momentum traders take advantage of the bearish market because they act against the Wall Street principle of buying high and selling low. The most common denotation of a bearish market is when share prices have fallen 20% below their recent highs. This is a situation that arises when shareholders start liquidating their equity which influences the demand and supply of shares causing abundant supply and lowered demand.

The bull and bear market principles are contrary to each other, and so is their trading strategy. While momentum traders flourish in bearish markets, conventional trading strategies advise the limited purchase of shares. In short, a bearish market occurs when the economy is unfavorable, and the stock market is declining.

Final Thoughts

Bearish and bullish markets are two opposite ends of the trading spectrum and represent different market conditions. However, these market conditions don’t need to occur only because of economic changes. Sometimes, bear or bull markets arise when a particular stock loses or gains value, boosting or lowering its demand in the stock market.

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