If someone wants to know how to profit in the stock market, the simplest answer would be to buy low and sell high. This is easier said than done with the constant fluctuation of the market. Sometimes the market is on the rise, meaning share values are increasing and people holding these shares are becoming wealthier. This is called a bull market. Other times, the market is falling, meaning share values are decreasing and people holding the shares are losing money. This is referred to as a bear market.
The easiest way to remember the names of these two markets is to think of how these two animals attack (as morbid as that might be). Bulls have long horns that stick out of the top/sides of their heads and they use these when they attack. They lower their head (starting position) and raise their head (ending position) catching their victim with their horns to throw them upward. Similarly, shares in a bull market tend to start lower and end higher, increasing in value.
Bears are just the opposite. A bear prepares to attack by standing tall on its hind legs, high above its prey (starting position) and comes down on its prey with its large, meaty paws knocking it to the ground (ending position). This is the typical behavior for stocks in a bear market. The market is in a decline, so stocks are starting high and losing value.
Although you wouldn’t want to get attacked by either of these animals in real life, it’d be much easier and desirable to get attacked by a bull in the stock market. If you’re holding onto shares of a stock in a bull market, your value in the market is increasing. Does this mean that you wouldn’t want to participate in a bear market at all? No, but only if you know what you are doing, and that starts with knowing what type of market you are currently in.
It’s also important to note that investors’ perceptions of the market they are in affects the market. If investors think the market is on the rise (bull), they will typically continue to invest, boosting the market upward. Inversely, when investors think the market is declining (bear), they will lose faith in the market, continuing the downward momentum.
As I’m sure you can easily see, it’s much easier to prosper in a bull market because you can buy stocks, hold them, and sell at a higher price, but how easy is it to prosper in a bear market? If you pay close attention to the market and make wise decisions, there are ways to prosper in a bear market using strategies like short-selling and fixed-income securities, but I wouldn’t really call it “easy.” This is why it is very important when investing in the stock market to know what market you are currently in and how to predict where the market is going. If you’d like to learn more about bull and bear markets, this is a great place to start.