‘Bull market’ is a term to describe a positive uprise of the stock market. Contrarily, a ‘bear market’ is when the stock market is significantly down. In a bull market, the prices of most stocks go higher, while the opposite happens in a bear market.

Both of these terms are used to describe different phases of the stock market depending on how it performs at the time. 

Bull and bear markets

While it is impossible to predict the stock market, over the short term accurately, markets may show an optimistic or pessimistic trend. Bull and bear markets represent upward and downward movements of risky assets like stocks. They indicate if the economy is growing or shrinking.

Understanding these markets is crucial before you start investing in the stock market because they give an idea about the return you will get. They help to determine correct investment strategies.

What is a bull market?

The stock market is considered a bull market when stock prices in general are higher. This is a phase that can last for a specific period because stock prices are extremely dynamic. 

According to many stock exchanges, when stock prices reflect at least 20% growth based on stock purchases and trade volumes from the last market downturn, it reflects a bull market. 

Bull markets may stretch for a long time and it is difficult to predict the endpoint for this type of market. 

What is a bear market?

A bear market starts when stock markets shrink due to an economic event such as a recession. A downward trend in the stock indices also indicates the start of a bear market. Several stock exchanges characterise a bear market with a 20% fall in share prices from its previous peak.

During this phase, major cash flow within the capital sectors is reduced because of a lack of demand. Other significant changes that occur during a bear market are sharp declines in stock prices, increased unemployment, and a pessimistic view of investors.

Bull market example

Historically, the Indian stock market has been in a multi-year bull market era with occasional pullbacks. However, the period between December 2009 and January 2015 is considered one of the most significant bull markets India has ever experienced. During this time, India’s most prominent stock index SENSEX rose beyond 98%.

Bear market example

The Indian economy has experienced its fair share of both bull and bear markets. The most recent bear market in India lasted for 44 days in 2020. From February 2020, the Indian economy entered a bearish phase due to the COVID-19 pandemic, with a 32.98% market decline. It ended in April 2020, making it one of the shortest bear markets in Indian history.

Difference between bull and bear market

Here are some of the major differences between bull and bear markets:

Secrets for profiting in bull and bear markets

Here are some secret ways you can get the best out of the bull and bear markets:

• While growth stocks can help you get the best returns during a bull market phase, value stocks are a better option during a bear market. It is mainly because of their share prices. Value stocks are cheaper so they are suitable for a bear market. 
• During bull markets, you can opt for long positions when you’ll wait for the stock prices to grow for a long time. On the other hand, short positions work better during bear markets due to the fluctuating rates.
• Both of these phases are dynamic but bull markets are relatively more stable; thus, long-term investments are suitable for both bullish and bearish phases.

Now that you know the difference between a bear and a bull market, you can start planning your investment strategies in accordance with your risk tolerance and return expectations. Although bull and bear markets may last for some time, the conditions can change at any given time. Tracking the trends in the market may help you predict how your investments are going to perform.  

FAQs

What is a bull and bear market?

Bull and bear markets are stock market phases. In a bull market, the stock market grows while in a bear market, stock prices fall and the economy shrinks. 

Is a bull market good or bad?

A bull market is an optimistic market. During this phase, the country’s GDP rises and unemployment issues decline. Bull markets also encourage foreign investors.

Do you buy or sell in a bull market?

In a bull market, you need to identify the trends early and buy stocks in the beginning. As their prices go higher, you can sell your equity investments when they are about to reach a peak.

Is it good to buy in a bear market?

Since the stock market is extremely dynamic, it is expected to change rapidly. However, bear market investments can also be profitable if you know when to withdraw or have a very long investment horizon.

How long does a bear market last?

Historically, bear markets in India have lasted for 8 months on average. Stock markets of India have experienced a bear market once in three years. In general, they are followed by bull markets. 

Why is it called a bear and bull market?

These terms came from the attacking styles of bulls and bears. For example, bulls push their horns and lift their victims, while bears haul them into the floor. 

How to make money in a bull market?

The best way to make profits in a bull market is to buy shares during the start of the bullish phase and sell them when the prices reach their peak.

What is the difference between bearish and bullish?

A bullish investor is an optimistic person who thinks the share prices will rise. On the other hand, a bearish investor will stop investing or sell stocks due to the fear of prices going down.