Jungle Bookkeeping: The Bulls and the Bears of the Financial Markets
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Naturally financial markets are characterized by fluctuations in the prices of the holdings listed. These rises and falls can be occasioned by countless various factors, such as policy decisions, political climate, inflation, natural calamities, and so on.
As long as trading is going on, there will be constant movement up and down in the value of a holding, however minor or brief the change is. Now, should it so happen that a particular holding maintain a trend heading in one direction, special terms will be used to refer to them. An upward trend, where the price of holding rises continuously will be referred to as a bull run.
The other side of this coin, whereby the value continues to trend downwards, is termed a bear run. These terms can be used when it comes to any type of security or holding, be it stocks, bonds, or currency. Understanding how individual and market-wide bear and bull runs come about is a great step towards understanding the fundamentals behind their best performing stocks and currencies.
Let’s check out these two states, their characteristics, and what makes them relevant in the world of trading.
Bull markets are scenarios whereby the market experience extended periods of positive growth in the value of a number of the securities listed on it, or where the securities enjoy a sustained period of high prices. For the most part, you will experience bull markets or bull runs when the economy in general is performing well, which may be indicated by such factors as a low unemployment rate, healthy levels of GDP (gross domestic product), and high investor confidence.
There are various ways through which we can make a profit when a bull market is at hand. Even though the market is in such a healthy condition, we still have to note that a certain level of risk will still be present in the transaction. The strategies here include:
Buy and Hold
This is the most straight forward strategy available to us, whereby we simply purchase a security and hold on to it as it continues to appreciate in value. The idea is to perhaps sell it later on for a profit. It requires a steady nerve and a healthy level of optimism to hold on to the securities long enough to reap the maximum possible returns.
Advanced Buy and Hold
This is simply Buy and Hold taken to the next level. This strategy entails basically picking out the best performing stock and increasing the size of the holding you have in it. The idea is to continue increasing your stake in the best performing stocks in the market to reap the most out of a successful transaction.
Full Swing Trading
This is the most aggressive method you could use to make a profit in a bull market, and it calls for the investor to play a very active role in the process, making use of techniques such as short-selling to make gains even within the environment of a bull market.
General trends will still experience brief periods of falling value even though the general trend will be upwards. Some traders will
On the opposite end of the spectrum, bear markets represent pessimistic seasons of falling security prices or permanently depressed prices on the markets. Economic indicators that will often accompany bear markets include low employment rates, business profit drops, reduced disposable incomes in the general population and such. Poor fiscal policy by regulators or government, major catastrophes, and such events may trigger bear markets to prevail as well.
Bear Markets versus Corrections
Do not make the mistake of confusing a market correction with a bear market. Corrections are short dips that barely last more than a few months before resuming the general trend while bear market can be completely bottomless. Falling into this trap might see you accidentally selling off your best performing stocks.
A viable way to make a profit within bear market conditions is by the selling of shares you borrowed and then buying them back at lower price points from a broker. Your profit or loss here will be represented by the difference between what you sold them for and the buy-back price.
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