Profitable Stock Trading I Basics Of Bull & Bear Markets

By: Reginald T. Hobbss

The stock market is called a 'bear market' when it moves downward for a length of time. When the market moves up, it is called a 'bull market'. A poor stock is called bearish and a stock that is succeeding is called bullish.

Bear and Bull terms are used to refer to the varying conditions of the stock market. These are not words that refer to short term fluctuations. A bear market is usually known as one in which prices of important stocks have plummeted by 20 percent or more for at least two months. A bear market may still provide numbers that may increase for a time. The opposite of this market is the bull market. They are known for rising prices in key stocks for a period of time.

Most of the time, the stock market reflects the state of the economy. When a market is experiencing a bull market, the economy is in good shape, interest rates are decent, and unemployment is low. Bear markets occur in an opposite situation. Investors will shy away from the stock market and companies could begin to lay off employees. In the worst of times, the market may crash when a bear market leads to panic selling. In an exaggerated bull market, investors may be over enthused to invest and the market will flourish until the bubble bursts.

Even though large sums can be made during bull markets, opportunities also exist in a bear market. Investors need to begin by being educated by the characteristic of each type of market. If they are prepared, they can make profits in both markets. Most buyers want to buy their stock in a bull market because the economy is doing well and they have more money to invest. A short supply exists when there is high demand, and this drives up the price of the stock. In a bear market prices on stocks fall and investors choose to pull their money and invest in fixed return items. When money is taken out of the stock, supply exceeds demand, and the stock loses even more value.

Many consider the best time to make money is when the stock is in a bull market. The investor needs to be prepared to jump in right away to make the most profit. During the bull market, dips in investments are typically not permanent and will soon be adjusted. The elevated prices won't last forever, so it is up to the investor to decide when the market has reached a peak and sell at that time.

Bear markets provide opportunities to buy stocks at a bargain price. The best time to buy is when the bear market is coming to an end. Before the stock market recovers, prices will likely fall before they are restored. Many stock traders call this "picking a bottom" and it is certainly easier said than done. Another investment strategy is to sell short during the bear market. To do this, you must sell stock that is not your own, in the hopes that the price drops lower. If this happens, you can buy the stock for less than you sold it and make a profit.

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