swing trading

BULL vs BEAR MARKET CHARACTERISTICS

| Swing Alpha on 7 Mar 2017 12:00 AM

Two animals take center stage when shoptalk is about the stock market. The stock trading scenarios are referred to as the bull and the bear. Bull and bear markets are not merely trade-talk. Both reflect market sentiments which are based on how these dominating creatures move when engaged in battle.

In layman’s term, if the market trend is going up, it is a bull market. Inversely, when the market is in a downtrend, it is a bear market. When you set in motion your desire to invest in the stock market, you will get the drift of these two scenarios. Follow the lead of veteran market players, learn how to make money and spot opportunities in both scenarios.

THE BULL MARKET

The bull will thrust its horns up when in attack mode. Figuratively speaking, much like the bull, when things are going great and everything is rising – the economy, employment, GDP and share prices – the stock market is in a bull run.

Trading in a Bull Market

A bull market is a period of prosperity. Compared to a bear market, the cycle is longer and chances of income windfalls are plenty. Sound decision making skill is a necessary tool.

1.    Timing is important
  • Bull markets usually follow a bear market. When the market is down, the only way to go is up.
  • Prepare your funds to invest or raise some more.
  • List down the stocks to buy and their prices for better fund allocation.
  • Do not wait for the market to hit rock bottom.
  • Start bargain hunting while the market is deep in a slump and stock prices continue to fall
  • A bull market tends to ignite without notice just as the market seems to be despondent.
  • Keep on buying stocks from the early stages of the run towards the mid-point.

2.    What to Buy
  • Following a bear market and when stock prices begin to rebound, some stocks display a certain cyclical pattern.
  • Review the stocks belonging to sectors that were hardest hit.
  • Stocks that are reliant on business cycles often bounce back with a vengeance.
  • Also, analyze the price movements of the blue chips and growth stocks.
  • If blue chip prices have fallen more than the growth stocks, then buy them and vice-versa.

3.    Holding Period
  • Hold on to your position for the better part until after the middle of the cycle.
  • As the market continues to soar, start selling the lower quality stocks and purchase the premium stocks as a replacement.
  • You are mitigating the risks when you dispose of low-quality stocks and in favor of the valued ones.
  • The risks are also increasing when the bull market is nearing its peak.

4.    Selling Point
  • As the jubilation heightens towards the peak, more and more investors are enticed to join the bandwagon.
  • The market is now driven to send stock prices to the roof.
  • This is the perfect time to sell when everyone else is on a buying spree.
  • When the market appears to be on a roll, stock prices will suddenly seek its own level.
  • Since correction is inevitable, prepare for the next round, the bear market.

THE BEAR MARKET

The bear will use its strength to bring down an opponent. This trait symbolizes a downturn which characterizes a bearish market. While the cycle is shorter compared to a bull market, intelligent investors thrive just the same.

Trading in a Bear Market

Curiously, a bear market means a scenario where investment activities are at a standstill. This is the period when the ‘bears’ come in. These investors have a clear understanding of the market sequence and economic cycles. So how does one invest in a bear market?

Understand the Situation
  • Just like when you encounter a ferocious grizzly bear in the outdoors, do not fight back. Keep calm and make no sudden moves.
  • The scenario is typically declining stock prices. The cycle will last for an extended period, perhaps longer than a year but less than two years if based on recent times.
  • A bear market is just another business cycle that you need to survive in. Economic problems come and go but the resilience of the stock market has been proven time and again. Even the acts and threats of terrorism cannot prevent a turnaround.

Industry Fundamentals
  • If stock trading is really your game, go for the so-called defensive stocks. These are stocks of companies that continue to sell goods or services regardless of a weakening economy. Interestingly, the stocks tend to outperform a bear market.
  • Stick to blue chip stocks because they can withstand economic slumps and times of uncertainty. That is the benefit of holding on to rock-solid securities for the long-term.

Manage Your Liquidity
  • In a bear market, it would be wise to adjust your portfolio mix. Invest more in safe investment outlets generating fixed income, like bonds, even if returns are moderate, if not low.
  • Consider going for other money market instruments like the U.S. Treasury bills certificates of deposit (CDs) that are high in liquidity with short-term maturities.
 

BOTH ARE BUSINESS CYCLES

In conclusion, the bull and the bear markets are repetitive business cycles inherent in the stock market. Each beast symbolizes the market outlook in a given stock trading season. The bulls are optimistic, always expecting prices to rise and hit the roof. On the other hand, the bears anticipate prices to fall and hit rock-bottom.

The contrasting business cycles are the underlying reasons for the spikes and dips in stock prices. However, as an investor, you can thrive in both market conditions. What qualities should you have? You should be able to predict market changes and react accordingly. With such expertise, spotting opportunities in a bull-run or bleak bear outlook will never be a setback. Pounce on the prey like how a bull or bear does it.
3 Mar 2017 4:38 PM | Anonymous

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