These two terms are used to describe how the markets are doing in general. They express whether the market is going up or down in value. However, they also denote how investors feel about the market and their future predictions for it.
A bull market describes one that is on the rise and is characterised by a sustained increase in market prices. In this time, investors are confident that the uptrend will continue in the long run. Bull markets can last for months or even years. Overall, the objective is to buy stock at low prices and sell it for more than you paid to make a profit.
During a bull market, there is a strong demand for securities yet only a weak supply so everyone wants to buy stock and no one wants to sell.
Typically, in this scenario, the country’s economy is strong and employment rates are high.
A bear market is one that declines as share prices continue to fall, resulting in a downward trend which investors believe will continue to decline. In this situation, there are more people wanting to sell stock and less wanting to buy.
Typically, the economy will be slow during a bear market and unemployment will rise. Note that the bear market can be more dangerous to invest in.
How to Profit from a Bull Market
- Save as much as you can – Bull Markets tend to start abruptly so while prices are still falling, begin to raise as much money as possible to invest.
- Look for bargains – in the early stages of a bull market, you are likely to acquire stock at book value which can then be sold for more when market prices continue to increase.
- Select appropriate industries – look to buy in industries susceptible to rebound once the economy picks up again e.g. a cyclical stock, one affected by economic changes and that usually refers to companies who sell affordable items that consumers can afford to buy more of in a thriving economy.
- Sell when everyone else wants to buy – Sell your lower-quality and cyclical stocks however long-term investors may choose to hold onto high-quality ones.
How to Profit from a Bear Market
- Find good stocks to buy – in a bear market both good and bad companies can decline however bad stocks tend to stay low whereas good ones can recover.
- Look for dividends – a dividend is a payment made by a company to its shareholders. So, if stocks go down due to selling but the company is still strong and able to pay dividends, it becomes a good buying opportunity for those seeking dividend income.
- Find the assets that increase in price – research past bear markets to see which stocks went up or held their own while the rest of the market declined. Many financial websites publish sector performance so check these and allocate your money to the sectors that outperform others in this respect.
As with all trading, profit is not always a given and losses are possible, so we recommend reading up as much as possible before you trade.