If you are a trader or investor you will be accustomed to seeing bullish and bearish markets. These are driven by numerous factors, one primary example being sentiment, something which is becoming more widely acknowledged within the trading world.
This article will look at some of the typical causes of a bull and bear market and where sentiment fits in, plus why it is an important trading factor that should be incorporated into every trading decision.
What does bullish and bearish mean?
Bullish: refers to an optimistic belief that the price will go up, causing an upward movement in the graphs as if the bull was striking prices upward with his horns.
Bearish: used to describe the expectation that prices will fall, is visually similar to a bear that attacks the charts with his paws, pushing them in a downward direction.
How can you characterize a bull and bear market?
A bull market is typically a timeframe in which the market is trending up, and prices are increasing. While there is no immediate indication of when a bear market stops and a bull market starts, typically, if prices of a market Index have increased by more than 20% since the last significant low, this Index is said to be in a bull market since that very low.
Although, this is not technically 100% correct because the market could well go up by 20% and not yet have made an all-time high.
Contrary to a bull market, a bear market on the other hand is a market where prices have declined more than 20% from their last significant high or all-time-high.
History of Prominence
From 1980, stocks have been in bull markets nearly 75% of the time. This highlights the infrequent nature of bearish markets in comparison. For instance, there has only been six bear markets with a >20% decline in the S&P 500 Index since 1980. None of these occasions resulted in a bear market lasting longer than five years, meaning that the S&P 500 Index had already recovered to new highs.
Role of Sentiment
Sentiment can be categorized as both bullish and bearish, respectively. Bullish sentiment is used to describe a general prevailing opinion of the market that prices will rise and upward trends will be experienced going forward. Contrastingly, bearish sentiment refers to the belief that a stock or market will experience a downward trajectory in terms of price, the opposite of being bullish.
As well as all the usual trading analytics methods, sentiment analysis is without a shadow of a doubt increasing in popularity. Analyzing sentiment of the market crowd psychology can help highlight whether there is an overlying bullish or bearish tendency for the market in general or one particular stock of interest to you. You can do this on platforms like StockGeist.ai, that enable traders and investors to view the real time sentiment with just a few clicks.