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Bull and Bear Symbols in Financial Markets

 

In financial markets, the terms "bull market" and "bear market" are often used to describe the state a market is in. Bull and Bear is a symbolic analogy to indicate how investment instruments, especially stocks, generally perform, in other words, whether they make their investors money or not.

It is extremely important for traders to understand where the markets are headed, whether down a bearish or bullish path. This is because how well the economy performs overall also has a major impact on your portfolio. No matter what stock you invest in, if there is a downward trend in the markets, this means that you will most likely lose money. Sitting on your investments when the market goes haywire is one of the biggest tests for an investor. Because it is extremely difficult to predict exactly where the downturn will end.

Whether it is a bull or bear market cannot be determined solely by the market's immediate reaction to a particular event. Short-term fluctuations may occur as a result of minor trend movements or a market correction. Saying it is a bullish or bearing market, on the other hand, means you are commenting on how the market performs over the long term.

 

What Does a Bull and Bear Market Mean?

 

A bull market means that the overall economic outlook looks promising and that share prices are rising steadily and strongly. The bear market, on the other hand, describes choppy market sessions where stocks fall sharply and macroeconomic data appear weak.

If you are in a bullish market, this means no time like the present to invest. Buoyed by encouraging figures, most investors tend to buy the financial assets they are interested in. This leads to a continuous upward trend in prices over a long period. In the course of a strong bull market, sales are relatively low, which may lead to some decreases in the prices of financial instruments, which then again quickly rebound as they find themselves more buyers, causing the price to notch rises well past its previous peak points. This keeps the upward trend going. Until there is a sell-off large enough to buck the trend and the value of instruments records a sharp decline of at least 25% from its peak. When this happens, you might want to fasten your seat belts for a bumpy ride as we might all be hurtling toward a slow grinding, long winded bear market.

In bear markets, the general outlook for the economy is weak and there is no favourable environment for investment. Investors tend to sell whatever stocks, or other financial assets they hold. This leads to a continuous downward trend in prices over a long period. Purchases made during a strong bear market have a relatively lower volume, which leads to a slight increase in the price of financial instruments, only to sink lower below the previous dip levels. This goes on until big enough purchase to reverse the breaks tide pushing prices higher from their dip points. When this happens, we may be in for a long-term bull market.

 

What a Bullish and Bearish Market Looks Like

 

As can be seen from the two cases above, investor behaviour influences the direction of financial markets, and the direction of financial markets (more specifically, how investors interpret markets) influences investor behaviour. This mutual interaction is the main factor that determines where prices go. Bull and bear markets have their own characteristics that separate them from one another.

 

Supply and Demand for Securities

 

In a bull market, there is a strong demand and weak supply for securities. This means that competition for share ownership is high. In other words, many investors want to buy securities, but few are willing to cash out their holdings. This will inevitably lead to higher prices.

 

General Economic Outlook and Employment

 

Bull markets are associated with a strong economy and high employment figures. This is because the shares of companies traded on the stock exchange find buyers and their prices go up. In the bear market, on the other hand, the economic outlook is weak. Falling share prices undermine the position of companies. Companies start to take a more conservative stance toward new investments and may even go down the path of shedding their existing human resources, let alone create jobs.

 

Investment Strategies and Instruments        

 

In a bull market, people are more attracted to high-risk investment instruments. While more investors are drawn towards crypto-currencies, Forex, and equity markets in a bull market, volatility and low trading volumes characterize bear markets. In bear markets, investors turn to lower-risk financial products. Spot purchases of commodities, government bonds, government-backed companies and/or industries become popular.

In bull markets, we often see investor behaviour referred to as "momentum investment strategy.” According to this strategy, when there is an upward trend (momentum) in the markets, it is feasible to invest in an instrument even if its price is high, as it is very likely to rise further. We can capture the essence of the momentum investment strategy in a nutshell as "buy high, sell high and make money.”

With bear markets, on the other hand, a "defensive investment strategy" is more prevalent. Investors either wait until the headwinds subside in the face of steadily falling prices, or make profits on the stock market through short selling.

 

Investor Psychology in Bull and Bear Markets

 

In bull markets, investors cannot resist the lure of ever-rising prices and there comes a moment when they simply throw caution to the wind and start investing for fear of missing the opportunity (FOMO). With everyone buying, the rise in trends may continue for a while. Potential returns draw new investments. Wheels continue to spin at full speed, leading to the perception that this may just go on forever. Until someone slams on the brakes.

It is usually the beginning of the end for bull markets when big investors (whales) sell their holdings at the peak. A large-volume sale causes prices to drop sharply. This spooks many small investors, who have little experience with the markets, and they jump on the last wagon of the train in the hope of making a profit. Fearing that prices could fall even further, they start cashing out their assets. This is characteristic of a bear market where prices keep falling and a sense of despair envelops the markets. The perception that prices will fall forever becomes so entrenched that even investors who have lost a significant portion of their invested capital choose to sell to have cash in hand. This allows them to preserve what cash they have left. Until the markets set themselves for a speedy recovery, seeing prices surge again.

The chain of events that ends the bear market begins with large-cap investors making large-volume purchases from the bottom, as in the bull market. Such a price movement, which can break the downward trend, encourages small investors, millions of them, to go with the flow and ride the waves of a sprightly market. Negative trader’s psychology is now reversed and everyone is ready to take action to get their share of the pie. As a result, prices continue to move in an upward trend.

Situations that reverse bull or bear markets can occur as a result of movements by large capital investors or due to macroeconomic and global policies. The messages and actions of powerful global players in the also determine the direction of markets. In fact, another characteristic of investors that influences the direction of the markets is that they are better at reading global economic indicators and predicting future events. It is very likely that much of the news that may come as a surprise to small capital investors and even be labelled as the reason for their financial losses was something large capital investors were already prepared for.