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.
Bull and bear markets can refer to any kinds of investments, assets, or commodities — so at any given moment, there may be a bull market for cryptocurrencies yet a bear market for stocks.
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.