Introduction
You may hear two animal words on the news. Bull market. Bear market. They sound strange. They are not about real animals. They are simple words for how prices move. This article will explain them in plain words.
What It Is
Stock means a small piece of a company. A share is one unit of that stock. People buy and sell shares. The price of shares goes up and down.
A bull market is a time when prices keep going up. People feel good about the future. They want to buy. A bull pushes its horns up. That is how people remember it.
A bear market is a time when prices keep going down. People feel scared about the future. They want to sell. A bear strikes its paws down. That is how people remember it.
Investopedia says a market is usually not called a true bear market unless it has fallen 20% or more from its recent high point. People use the same 20% idea for a bull market, on the way up. The 20% line is a simple rule. It is not a law of nature.
How It Works
Prices move because of supply and demand. Demand means how many people want to buy. Supply means how many people want to sell.
In a bull market, many people want to buy. Few people want to sell. So prices go up. In a bear market, many people want to sell. Few people want to buy. So prices go down.
Feelings matter too. When jobs are strong, companies earn more money, and interest rates are low, people feel hopeful. Interest rate means the cost to borrow money. Low rates can help companies grow.
When jobs are weak, companies earn less, or prices rise too fast, people feel scared. Then they may sell. Selling can push prices down more.
Bull markets can last a long time. Since 1957, there have been 13 bull markets in the S&P 500. The S&P 500 is a list of 500 big U.S. companies. It is a way to watch the whole market. Bull markets lasted about 4.4 years on average. A bear market can feel fast. Prices can fall in a short time.
An Example With Numbers
Let us use simple numbers. Say a market index starts at 100. An index is a number that tracks many stocks at once.
In a bull market, it rises 20%. 100 plus 20 is 120. So the index is now 120.
In a bear market, it falls 20% from a high point. Say it starts at 120. 20% of 120 is 24. 120 minus 24 is 96. So the index is now 96.
Now think of one share. You buy 1 share for $100. In a bull market, the price rises to $120. You have $20 more on paper. In a bear market, the price falls to $80. That is a fall of 20%. You have $20 less on paper.
On paper means you have not sold yet. You only lock in the gain or loss when you sell. That is why the 20% line matters. It is a clear line. It helps people say, “This is more than a small dip.”
Common Mistakes
Mistake 1: Thinking a bull market means prices will never fall. They can fall a little, even in a bull market. A small fall is not the end.
Mistake 2: Thinking a bear market means all companies are bad. A good company can still be good. Its price can fall because people are scared.
Mistake 3: Trying to guess the exact top or bottom. No one knows the exact day prices will turn. People who try often buy high and sell low.
Mistake 4: Selling everything in fear. Fear can make people sell at the worst time. A plan helps more than panic.
Final Thoughts
A bull market means prices are going up. A bear market means prices are going down. The 20% line helps us name them. You do not need to fear the words. You need to know what they mean. Then you can stay calm and think long term. Long term means many years, not many days.
Related post: What Is a Stock Split? Why Companies Cut Their Price Without Losing Value
Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.
Sources: Investopedia: Bull vs. Bear Markets: What’s the Difference?
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