It’s safe to say that today there are more retail and institutional investors interested in investing than ever before. Although the stock trading market has been around since 1602, it was limited for a long time to people that have the resources and connections, but today, there is a completely different reality.
Thanks to the world wide web, you can trade on any trading market in just a couple of clicks from your computer in the comfort of your own home or on the move. That said, every trading market goes through a bull and bear market cycle – it doesn’t matter if it’s a new, decentralized trading scene like the crypto market or trading stocks online.
A good understanding of the relationship between the bear and bull cycle will be important for every investor. But, if you’re just starting out and you’re puzzled by headlines that consist of the words – bear or bull market phase, we’ve got your back. Below, we will cover in plain English everything you need to know.
What is Bear Market Phase
A bear market phase refers to a bear market cycle with stocks that experienced at least a 20% decline in value. Generally, when the market goes through a bear phase, the prices drop significantly, and everything is in decline following a downward trend. If you’re wondering why we use the term ‘Bear’ to refer to a bear market phase, one theory is based on the way bears in the wild kill their prey.
It’s expected for the bear to raise its paws before killing the prey. But, a more popular answer is that bears retreat in winter and hibernate, which is why they are associated with a downfall of the market.
What Investors Should Do
There isn’t a clear-cut answer to what your next actions should be as every investor has their own clear goals in mind and financial budget. But, oftentimes, you will hear that investors sell their stocks during a bear market phase because they are afraid of losing their funds.
Other investors will wait for the market to reach a bear market phase in order to purchase stocks or other assets like cryptocurrencies, for instance, because they expect to find cheaper assets during a bear cycle with the hope that eventually, the value will stabilize, and experience a rise of the price of their portfolio.
So, ultimately, it’s up to you to decide what is the appropriate course of action for your portfolio. One tip for day traders is to check out a day trading simulator which stimulates online trading and offers you a first-hand glimpse of trading in certain conditions and what you can expect from trading in certain conditions without any real losses.
Bull Market Phase
As one could expect, a bull market phase represents a completely different reality than the bear market cycle. It’s expected for the value of certain markets to rise or increase quickly and for investors have better handle of their financial issues. The term bull market phase comes from the word ‘bullish,’ which refers to making a big purchase or an impulsive decision in the hopes of earning higher returns.
The second theory is that we use a bull as an associated for an upward trajectory of the market, similarly to a charging bull. In a nutshell, when we use the term’ bull cycle’ we are referring to a market as going through an upward spiral, with stocks that have experienced an increase of at least 20%.
One example of a popular bull market phase that ultimately took over the entire crypto market was the latest bull cycle of Bitcoin, which happened after the halving in May 2020. It was also the longest bull market phase to this date, as it lasted for over a year, and the price of Bitcoin increased by over 170%, reaching a new record-breaking price of over $60,000.
So, if you are new investors and you’re wondering what the best action is when the market experiencing a bull cycle – whether you need to buy or sell actually – we will have to disappoint you as, again, this will depend on the type of market, its volatility, and your financial budget.
That being said, keep in mind that most investors tend to purchase securities during a bear cycle and sell during a bull cycle. If you have heard the saying buy low sell high saying, it mainly refers to this strategy. However, today we see many investors who are flocking to the market which is experiencing a bull run, and they are leaving their position only during the next bull run.
To sum up, the bull market phase typically represents longer periods during which the prices of the securities rise or is expected to increase; in contrast, during a bear market cycle, the price of securities decreases. Both bull and bear cycles coincide with economic cycles of expansion, peak, contraction, and trough. Therefore, it’s best to make decisions according to the latest financial news as well as your financial budget and personal goals.