It is often hard to tell if the stock market is actually heading towards a more bullish or bearish trend because either way, your investments will be effected. However, there are certain indicators that you can use to help you determine if the market is heading for either wave. As an investor, you would know the effects and the measures you have to take in either the bull or bear markets and hence, if you have a firm grasp on the indicators, you would be able to at least be ready for them
How to tell if a bull market is coming around?
As mentioned before, the bull market comes around when prices of shares and indexes are on a positive run and are increasing. You will find that the price is at least 20% higher than the lowest point in recent months and it seemed to be rising all the time. This is the time when you are experiencing some very positive sentiments around the market. The stocks that you are monitoring are increasing by the minute and drops are very minimal.
You will find that there are more buyers than sellers in the markets and when you sell a certain stock, it is almost immediately bought. This is where buyers are in the market looking to make handsome profits. On top of that, if you find that consumer spending is increasing, it might be suggesting a bull market because people are making more money and hence, they are spending more. This is the time when you must start buying early in the trend as the shares are still at their early rising trend. Once the shares reach their peak, it is the best time to sell.
How to tell if a bear market is coming around?
On the other hand the bear market creates a more gloomy sentiment. This is because it is the exact opposite of the bull market where shareholders and investors are losing confidence in the companies they have invested in. This is the time when you might experience a lot of panic selling or stalled trading. The former would be from investors who want to cut their losses and to dispose off any shares they have which they think might not be profitable anymore. Hence, they are looking to sell them off and perhaps lose lesser than they expect.
The other type of behaviour would be those who can afford to keep stocks and wait for a rebound. You will find that despite the shares dropping to a price that you might want to buy, there are limited units available because not many people are actually selling.
You will discover that the bear market is coming around when the market fall to 20% from the highest peak previously. It will also dampen consumer spending as people are more cautious where they will be spending less. The bear market is a known time when you can make a profit through short selling and going for the safer and long-term investments in which you can afford to wait for the bear market to be over before selling your stocks at a higher price.