Bull vs bear markets – everything you need to know

The terms “bull” and “bear” are commonly used in financial markets. When it comes to investing - including in crypto - it’s important to understand if a market is “bullish” or “bearish” before making your next move.

So, we’re going to look at the difference between bull and bear, how they work and how you should navigate them.

What’s the difference?

A bull market refers to a positive trend in market prices, in which they are rising or expected to rise. Bull markets tend to take place when there’s a 20% increase in stock prices, following two previous 20% declines. They also indicate a strong economy and low unemployment rates, with investor confidence growing throughout this period. Bull markets last 2.7 years on average. However, the longest bull market lasted from 2009 to 2020, resulting in over 400% in stock growth.

On the other hand, bear markets indicate negative movement in a market with a fall of at least 20% from recent highs. Bear markets happen for several reasons, including economic recessions, geopolitical crises or global pandemics, and are characterised by widespread pessimism and low confidence among investors. They can be periodic and last for several weeks or months, or can be long-term and last for several years.

Where do the terms “bull” and “bear” come from?

We’ve looked at what bullish and bearish markets are, but where do these names come from?

Think of the way bulls and bears attack their opponents. While a bull thrusts its horns upwards, a bear swipes down with its claws. These actions are used as metaphors in the market to refer to either an upward or downward trend.

However, in terms of historical origins, there are two popular stories connected to these terms.

The first goes back to the 16th century, where people known as “bearskin jobbers” would act as the middleman for the buying and selling of bear skins. Bearskin jobbers would sell skins that they did not yet own at a high price in hopes that they could buy them at a low price before delivering them. Today, this strategy is known as “short selling”.

The second story takes place in the 17th century London stock market, where investors would use a board to facilitate the trading of stocks. When demand was high, the board was full of bulletins (or “bulls”) but would become “bare” when demand was low.

What to do in a bullish or bearish market

So, what should you do if you find yourself in bullish or bearish market conditions?

When the market is bullish, it’s said that the best thing to do is buy stocks early in the trend and then sell them when they have reached their peak value. While there is a risk of loss, these are usually only minor and temporary.

In a bear market, you’re more likely to face significant losses. However, traders claim there are still methods that can be used to make a profit during this period. For example, short selling and safe investments, such as fixed-income securities. An investor may also invest in defensive stocks, as these are only slightly affected by trends and are stable in both markets.

Overall, a bullish market indicates a positive trend, whereas a bearish market points to the opposite. Either way, both markets will influence investments, so it’s always important to understand how each of them work