Markets are constantly in motion and can experience long-term declines or rises. Long-term decline in prices has been portrayed as a bear attack movement. A prolonged decline in prices can be concerning for investors. What is the bear market that concerns investors?
A bear market is a term used to describe a general decline in stock market prices for a period of several weeks or longer. It occurs when there is a recession or significant event in the economy. Bear market causes a disruption in the balance of supply and demand. Therefore, despite high supply, demand is low.
A bear market can be short or long-term. In a bear market, a price drop of 20% or more is required. The bear market ends when new highs are reached in the stock market. The recovery period in a bear market lasts from the lowest closing price to the new peak price. Also, a widely accepted ending of a bear market is when a 20% increase in value is achieved.
In this article, we will discuss the bull and bear markets, which are frequently encountered terms in financial markets. The bear market represents a decrease in the value of a digital currency, while the bull market represents an increase.
A bearish trend is a term used for periods when markets experience a decline. When the bear market begins, it is predicted that this downward trend will continue for a long time. In a bearish period, selling pressure is higher than buying pressure. The bear market appears when prices are expected to continue to decline for a long time, and when the market is pessimistic. To say that any digital asset is in a bear market, the current trend must be downward. However, it is necessary for it to move down by at least 20% from the previous peak.
The bear figure is used to indicate the downward trend in the market. This is because bears swipe their claws downward during an attack. This symbol indicates market fluctuations. The bear trap, on the other hand, is used to describe short-term declines during a bull market, where the market is in a period of rising prices. Investors refer to short-term declines that occur while the market's overall upward trend continues as “bear traps.”
What Factors Drive the Bear Market?
In bear market, demand decreases and price falls. There are several reasons that play an important role in the formation of a bear market. Let's take a look at some of these factors together:
- Stable economy
- Long-term and insufficient sales
- Lack of employment
- Low disposable income
- Market sentiment
- Uncertainty
Situations like the factors listed above can initiate or continue a bear trend.
How Long Does Bear Market Last?
It is unfortunately not possible to make a clear prediction about the duration of the bear market. During a bear market, where the asset is in a downward trend, investors do not want to buy and the price continues to move downward.
Economic growth, market conditions, supply and demand balance, and investors' sentiment are some of the factors that affect the process. Generally, investors expect the bear season to last for 6 months. However, bear market periods that lasted much longer have also occurred in the past.
Why Is It Called a Bear Market?
The reason why it is called a bear market is because bears attack their prey by moving their paws downwards.
What Are the Stages of Bear Market?
There are four stages of a bear market:
- The first stage is characterized by high prices and high investor sensitivity. Towards the end of the stage, investors start withdrawing from the market to take profits.
- The second stage sees prices of assets clearly decreasing and profits decreasing. As a result of the decrease, investors panic.
- In the third stage, predictions about market prices start to come in and, as a result, some prices and trading volumes increase.
- The fourth stage sees a slow decline in stock prices and falling prices attract investors back to the market, marking the transition from a bear market to a bull market.
How to Invest in a Bear Market?
The bear market is a stressful and intimidating process for investors. Investors worry about the decrease in value of their portfolios.
Four steps can be followed to invest correctly in a bear market:
- Avoid sudden reactions
- Focus on quality
- Do not try to time the market
- Gradually build positions over time
Avoid Sudden Reactions
One of the biggest mistakes an investor can make in a bear market is to react quickly to market movements. Investors who quickly enter and exit stock prices will show a significantly low performance in the stock market. Although the primary purpose of investing is to buy low and sell high, the focus should be on avoiding emotional reactions to market volatility.
Focus on Quality
Low-quality companies without a competitive advantage take a hit in the bear market, while high-quality companies can perform better. It is important to focus on companies with solid balance sheets and high competitive advantage against potential sudden situations.
Do Not Try to Time the Market
Investors who try to time the market lose.
Gradually Build Positions Over Time
Trying to time the market and putting all the assets in one place does not give positive results. In a bear market, gradually building stock positions over time is a good strategy. This way, even if stock prices continue to fall, new low prices can be used to the investor's advantage.
How to Profit During a Bear Market?
There are three ways to make a profit in a bear market:
- Short selling
- Selling options
- Inverse ETFs
Short Selling
Short selling is the sale of securities that are not owned by the seller or the sale order for them.
Selling Options
Selling options are known as the right to sell an asset that is present in a certain amount at a predetermined price.
Inverse ETFs
An inverse ETF is an investment fund designed for investors seeking to profit from a decline in the market.
What Is Bear Market Rally?
Bear market rally is a term used to describe the rise in stock prices following a bear market. However, this rise is temporary. In other words, bear market rally is a short-term recovery in stock prices following a bear market decline. It is difficult to detect a bear market rally and it can occur multiple times during a prolonged bear market. Bear market rally indicates that the decline will continue and prices will fall before transitioning to a bull market.
What Are Real-World Examples of Bear Markets?
Long-term bear market that occurred between 1973-1982, bear market in India, stock market decline in 2002, and situations like the coronavirus outbreak in 2020 can be given as examples of bear markets.
