What Is a Bull and a Bear Market

Those who are new to the world of investing may scratch their heads upon hearing the words bull and bear markets thrown around by brokers or investors. Indeed, if you have no idea what bull and bear markets are, you will probably be asking yourself what kind of financial zoo you just got yourself into. However, bull and bear markets are easy-to-understand concepts, which is good since they are two of the most important investment terms you need to know.

Bull and bear markets refer to how the markets or particular stocks are looking in a certain point in time. Bull markets refer to a rising market—a market where the prices of stocks are expected to go up. A bear market, on the other hand, is a market where stocks are expected to go down.

The reason markets are referred to a bears or bulls is because bears are slow and sluggish, while bears are burly and aggressive. A bull market is also referred to as a confident market. This happens when there is a rise in value of the market of about 20%. If the markets fall below 20%, then that is a bear market, essentially one that is lacking in confidence. Prices in a bear market typically stay the same or go down.

Knowing the difference between a bull and bear market can help in market timing, that is, knowing whether it is the right kind of market to buy or sell stock. For example, some think that it is wise to buy stocks from a bear market, where prices are lower, and sell the stock off when the market becomes aggressive in order to ask for higher price.