The stock market can seem like a game of chance sometimes — you might wake up one day to find that your investments have grown by 5% overnight, then six months down the line, there was an unexpected crash, and you’ve lost all your gains.
But what if I told you that this so-called “randomness” is actually a well-studied lifecycle that we can predict and account for in our trading decisions? Let’s take a look at what bear and bull markets are, what to expect from them, and how to react to them for maximum profit.
A bull market is defined as a time when prices rise — generally by 20% or more. It’s a time when investors see their investments skyrocket in value and can find the most opportunities for profit-making since everything is booming.
The mechanisms here are very similar to those found in a bull market, except for everything happens in reverse: prices decline, so more investors sell, resulting in prices to continually decline. As a result, you can expect slow growth and high unemployment in addition to declining prices.
How Should You React to Bull Markets and Bear Markets?
One thing you should have picked up on by now is that you can’t have a bull market without a bear market, and vice versa — the two are complementary and natural, so there’s no need to be afraid of the lows.