An urge to earn: No Matters Market is Bullish or Bearish

Posted by Nandini Mishra on July 25th, 2017

Usually in the investing world, we may hear the words “bull” and “bear” to describe market conditions. the words are often used to refer to sentiment among traders, which can make the market go bearish or bullish even if the trend hasn’t started yet.

Bearish and Bullish are simply terms used to characterize trends in the currency, commodity or stock markets.

If prices of different stocks shows uptrend, then that market is called bull market. If prices of different stocks shows downtrend, then that market is called bear market. A single sector or even  a particular asset, can be called bearish and bullish.

The terms“Bull” and “Bear” are used to describe the sentiments of the stock market- it tells whether they are appreciating or depreciating in value.

Bullish Market

Investors who believe that a stock price will increase over time are said to be bullish. Investors who buy calls are bullish on the underlying stock. That is, they believe that the stock price will rise and have paid for the right to purchase the stock at a specific price known as the exercise price or strike price. An investor who has sold puts is also considered to be bullish on the stock. The seller of a put has an obligation to buy the stock and, therefore, believes that the stock price will rise.

Bearish Market

Investors who believe that a stock price will decline are said to be bearish. The seller of a call has an obligation to sell the stock to the purchaser at a specified price and believes that the stock price will fall and is therefore bearish. The buyer of a put wants the price to drop so that they may sell the stock at a higher price to the seller of the put contract. They are also considered to be bearish on the stock.

Characteristics of a Bull and Bear Market

Although we know that a bull or bear market condition is marked by the direction of stock prices, there are some accompanying characteristics of the bull and bear markets that investors should be aware of. The following list describes some of the factors that generally are affected by the current market type, but do keep in mind that these are not steadfast or absolute rules for typifying either bull or bear markets:

Supply and Demand for Securities - In a bull market, we see strong demand and weak supply for securities. In other words, many investors are wishing to buy securities while few are willing to sell. As a result, share prices will rise as investors compete to obtain available equity. In a bear market, the opposite is true as more people are looking to sell than buy. The demand is significantly lower than supply and, as a result, share prices drop.

Investor Psychology - Because the market's behavior is impacted and determined by how individuals perceive that behavior, investor psychology and sentiment are fundamental to whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent. In a bull market, most everyone is interested in the market, willingly participating in the hope of obtaining a profit. During a bear market, on the other hand, market sentiment is negative as investors are beginning to move their money out of equities and into fixed-income securities until there is a positive move. In sum, the decline in stock market prices shakes investor confidence, which causes investors to keep their money out of the market - which, in turn, causes the decline in the stock market. 

Change in Economic Activity- Because the businesses whose stocks are trading on the exchanges are the participants of the greater economy, the stock market and the economy are strongly connected. A bear market is associated with a weak economy as most businesses are unable to record huge profits because consumers are not spending nearly enough. This decline in profits, of course, directly affects the way the market values stocks. In a bull market, the reverse occurs as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.

Up and down movements in the market are normal and are what make it possible for traditional traders to make money trading. However, only traders trading in Stock Cash Tips of ProfitAim who can short sell on Stock Cash Trading which enable them to keep making money in a bullish and even in serious bear market.