Financial markets can basically go through two trends over time, bullish and bearish. In addition, these two tendencies are usually associated with the name of two well-known animals. In this article we will focus on the term associated with bear markets, the bear market.
Bear Market Definition
As already mentioned in the introduction, the bear market is associated with the bear markets. Financial markets with this trend suffer large falls in prices, and this is because in them very negative or pessimistic feelings predominate.
To this type of situation it is arrived starting from opposite situations, that is to say, very positive situations, which, however, gradually decline to the already mentioned pessimism caused by the price drop. However, these price drops can be taken advantage of by investors, so that they can obtain high returns on their investments.
Bear Market Features
- In the bear markets they produce Decreases in demand and increases in supply simultaneously. As a consequence of this reduction in demand, situations of lack of buyers.
- Due to this lack of buyers, the issued share prices begin to decline until reaching very low levels (with drops that can reach 20% of the original price). This raises in investors the need to sell shares under your ownership as quickly as possible, thus avoiding potentially greater losses. In addition, this need increases due to the pessimistic feeling and mistrust that floods the market
- These bear markets are usually linked to periods in national economies where consumption is reduced, and therefore, so are the income of the companies.
- The bear markets they can be cyclical or long-term. The cyclical have a period of duration of one or two months approximately, while those who remain in the long term They can even reach up to a decade in duration.
- Between the options that investors have to obtain profitability In this type of markets are the following: short sale, put options and reverse listed investment funds.
Bear Market Vs Bull Market
In opposition to the bear market, we found the bull market. This is a concept associated with bull markets, that is, markets that are growing strongly, and that are experiencing significant price increases.
Contrary to the case of the bear market, to get to the bull markets starts from situations in which a pessimistic feeling prevails in the market, that is to say, it starts from bear markets, in which these negative feelings are transformed into positive ones, into optimists. This expansion phase it can begin to be identified when prices suffer sustained increases over time.
But, how is it possible to predict, this expansion or growth does not occur indefinitely. There is a moment in which it reaches a maximum, from which it begins to occur recession periods, and the severity or impact of these recessions will depend on the speed with which the aforementioned expansion phase occurred.
Once the bull market has been described in a general way, it is worth highlighting the differences between both types of markets. In this regard, we would like to point out the following differences between bear markets and bull markets:
- In opposition to the bear market, in the bull markets we find a strong increase in demand, In front of one generally weak supply. This means that in bull markets there is a high number of investors wanting to buy securities or titles, which leads to increases in price levels.
- The sentiments that are flooding the markets can be clearly distinguished. During the bull markets (bull markets) the existing sensations are, in general, optimistic and positive. On the other hand, during the bear markets (bear markets), sentiments are often pessimistic and negative.
- Contrary to what happens in the bear markets, the bull markets are characterized by a high consume of the population, which supposes a strengthening of the economies.
Knowing the different stages that markets can go through can be of great help when making decisions on how to act in them. Through the elaboration of this post, we trust that we have explained in the most correct way possible what the bear market, as well as distinguish it from its opposite trend (the bull market).
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