Thursday, May 03, 2012

Bull Market VS Bear Market

Those who normally didn't read the financial part of the newspaper will most definitely won't know the term bull and bear. There are of course a lot of terms but these two are considered the most widely used terms in the financial market. Bull and Bear are generally describing the market sentiment of individuals either to buy the market up or to sell the market down.
In short, if there are a lot of individuals will likely place their money in the market - therefore increasing the demand for the market and ultimately increasing its value. These individual are terms as bulls and the market are bull market. The opposite will be bear market where a lot of individuals would like to sell their shares and take out money from the market, thus increasing the supply for the stocks and forcing the sellers to reduce the price in order to get a buyer. This market will term as bear market.
Why Bull and Why Bear?
There are different explanation for the term bull and bear used. But most popular one was the way the animals attack. Bulls uses it horns and attack its opponent upwards whereas a bear normally stand high and uses its paws to swipe down its enemy.
When people talked about bull market or bear market it can be referring to different time frame accordingly to the person's interpretation. And thus it should not be worried for long term investors to a short term bear market as a long term investors might be loading the stocks for a few years and the selling sentiment is only within weeks or months.
How people determine the bear market or bull market?
There are a few ways to tell where the market is heading. Firstly we need to see the trend line.
A market has 3 trend: upward trend, downward trend and sideways. An upward market or bull market is referring to a market with always move up higher and higher and even when the price is facing correction, the correction price will never be lower than the earlier low price. But when it move higher it will always move above the earlier high price thus forming higher high and higher low.
Downward market or bear market will be market where it will form lower high and lower low price resulting if you are drawing a line on the average price it will be heading south.
Sideway Market is a confuse market where the strength of the bull are same as the strength of the bear. The price will always move in a very tight range and thus not going either down or up because a little movement down the bull will buy it up and a little up, the bear will sell its way down.
As the saying goes, the trend is your friend. Always make sure when you are investing you are on the right trend. Don't try to be a bull in a bear market as you will only see your hard earn money being swipe away by the bears.

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