The world of investing might be confusing to beginners, especially as it is filled with foreign jargon, complex theories, and an array of choices when it comes to online trading.
If you’re a beginner in this field and you want to start investing, it is important to familiarise yourself with the intricacies of the bear and bull market. Below, we will share some important things you should know as an investor about the bear and bullish market cycles.
The bull market is characterized by a surge in investment prices for a sustained period of time. Generally, during a bull market phase, the stock prices tend to rise at least 20% from the recent lowest point. It is a time where the investors are confident about the performance in the market, and they are eager to invest in different assets, while these actions further fuel the demand and the bull market phase of specific assets.
Moreover, the bull market cycles are characterized by low unemployment rates and a boom in the economy. Some examples of bull market cycles include the latest bull cycle of Bitcoin, which started after the latest halving in 2020. More specifically, Bitcoin is a decentralized virtual currency that is by default a deflationary asset. The halving event is designed to cut in half the ongoing supply of BTC and shift the relationship between supply and demand.
This is why after the last having event in 2020 (the reward was minimized to 6.25 BTC), the price continued to rise throughout the year, and into 2021 it surged up to $60,000. In comparison, the initial price point after the halving was around $10,000.
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Otherwise, throughout history, there were multiple bull market cycles. For example, in the US, there was a significant boom in the economy and a bull run after World War II. Actually, that bull cycle exceeded the previous market peak.
But the bull market phase can’t last forever, and it is important to have a great financial plan regarding your investments during this period. The ideal thing during a bull market phase is to leverage the rise of the prices on assets that you have bought early. In other words, investors participate in trading more during a bull market phase.
During a bear market phase, the stock price decreased by 20% or even more, from recent highs, for a longer period of time. In contrast to bull market cycles, during bear market cycles, the prices of stocks tend to decline. The market is characterized by higher unemployment rates, an economic slowdown, or recession. Typically, investors during this period sell their assets or stocks, and they prefer to invest in fixed income securities or safe-haven assets.
But, also bear market cycles represent an opportunity for investors to purchase stocks or other assets at lower prices. Bear market cycles are not always associated with the recession, but based on the historical data, rescission happens 70% after bear market cycles. Otherwise, a famous bear market cycle was the Great Recession that lasted over 40 years.
The Bottom Line
It’s important as an investor to work with a financial advisor and have a great financial strategy for the long run. This will help you make appropriate changes as the market enters into another cycle. That being said, no one can for sure predict the transitions in the market. So, it’s crucial to have a good financial budget and a long-term strategy that works for your budget and personal goals.