What is Bear Market ?
What is Bear Market
The bear market is a condition in which, securities show
- decreasing trend in prices,
- caused by negative sentiments in the market.
If the market condition falls by more than 20%, it is a clear indication of a bear market. This condition takes place when the economy enters into
- inflation, and
Falling of investor confidence is one of the most important economic indicators for bear market. If an investor thinks that something is going to be happening, it starts selling stocks and this action turns anticipation into reality.
The condition is triggered when investors starts losing faith in the market. As a result, demand of the stocks starts decreasing, leading the market toward pessimism.
Charateristics and Causes
The characteristics and causes of bearish condition may vary. However, Investor sentiments and economic cycle play a vital role in moving the market toward bearish condition. Similarly, Government intervention may also affect bear market. The economic expansion or contraction is based on Government decisions such as changes in various tax rates or the federal funds rate.
Bear Market Phases
Generally, the bear market has 4 phases.
- In the 1st phase, investor sentiments are high and they tend to exit the market by selling the stocks in reasonable prices.
- 2nd phase shows fall of stock prices quickly, corporate earnings and trading activity decreases.
- 3rd phase reflects the increase in trading volumes and prices as the speculators enter the market.
- In 4th and final phase, the prices of stocks continue to fall, but with a slower pace.
Time frame of Bear Market
- The bear market is a short term market, and there is no calculation to predict this condition. Investors must be aware about market dynamics and timings for buying and selling stocks in order to maximize their profits.