A bear market is a term used to describe a downward trending stock market. The prices of stocks keep falling and investors and traders are pessimistic about the market. These sentiments affect their activities causing stocks to fall even further. When the overall stock market or the leading indices of the stock market fall 20% or more over a period of at least 2 months, the market is generally referred to as a bear market.
This is in contrast to the bull market where prices keep rising and the general sentiment is that of optimism.
This is a bear market which runs for long period of time ranging from 5 years to even 25 years. This is caused due to long periods of decline in the country’s economy or even the world economy. The Great Depression of America in the 1930’s is a classic example of a secular bear market.
This is a very short phase in the bear market when prices of stocks rise giving a false impression that markets have entered a bull phase. Gullible investors and traders will rush to buy stocks falling into the ‘bear trap’. The rally will soon be over and those who bought shares in the rally will be stuck with no escape route.
In a bull market, there may be sudden declines which will look like the beginning of a bear phase only to bounce back. Such falls of short duration are called Market Corrections.
When the bear market is nearing its end, shrewd investors will start nibbling or buying stocks at rock bottom prices which is known as bottom fishing. In reality however, it is not an easy to predict the market bottom.
When a person who participates in the market has a pessimistic view about prices of stocks or the general market direction, he is called a bear.
A bear market doesn’t always mean losses. Astute investors and traders not only succeed in mitigating their losses but even make profits by executing the right strategies.