Sunday, March 30, 2014

When to buy stocks either during "Bullish" or "Bearish"

While many investors fall into one of the two categories, and tend to follow their pattern of investing, regardless of actual market conditions, bull and bear markets go in cycles.

Eventually, every bull market phase will peak, and reach a market top or a stock-market bubble. This peak is not usually a dramatic event. People are naturally unaware at the time that the market has reached the highest point it will for a few years.

A decline then follows, beginning a bear market phase. The decline is usually gradual at first and then gains momentum. A market bottom is when the market reaches it's lowest point. This signals the end the downturn, and precedes the beginning of an upward moving trend or new bull market phase.

It is very difficult to identify the bottom, or end of the downturn, while it is occurring. An upturn following a decline is often short-lived, followed by a resumed declining of prices. This can bring losses for an investor who purchases shares during a "false" market bottom, and must then sell them at an even lower price due to insufficient liquidity.

Some people believe that recognizing bull and bear markets is a key way to make money on stock trading and investing. The basic principle for profiting from trading is to buy low and sell high. One way to do this is to buy stocks in a bear market when the prices are low and sell stocks in a bull market when the prices are high. However, recognizing the best times to buy and sell is not that much easy.

It's tough if not impossible to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation can sometimes play a large (if not dominant) role in the markets.

Many investors sell in a bear market, either because they become too emotional about trading and don’t want to risk bigger losses, or they don’t have the liquidity to hold onto their investments while awaiting a market reversal.

If a large number of investors are fearful and pessimistic during a bear market, they are likely to contribute to further declines by “panic selling.”

Conversely, the optimism and increased trading that occurs during a bull market serves to boost investor confidence. The increased liquidity results in higher volumes of trading, further raising the prices of stocks.

Ways to Profit in Bull Markets

A bull market occurs when security prices rise faster than the overall average rate. These market types are accompanied by economic growth periods and optimism among investors.

New investors often assume that they need to avoid investing during bear markets, and invest heavily during bull markets. This is not the case. Experienced investors know that you need to be able to invest in any sort of market condition, provided that you do so wisely. Each investor has a different strategy for dealing with a bull market or bearish markets. 


Many investors try to take advantage of bull markets by buying stocks as soon as the market gets bullish, and then starting to sell when prices seem to have reached their peak. The difficulty, of course, is that it is almost impossible to tell when the trend is beginning and when it will peak. In general, investors can take more chances with the market during a bullish phase. Since overall prices will rise, the chances of making a profit are good.

Ways to Profit in Bear Markets

A bear market is defined as a drop of 20% or more in a market average over a one-year period, measured from the closing low to the closing high. Generally, these market types occur during economic recessions or depressions, when pessimism prevails. But amidst the rubble lie opportunities to make money for those who know how to use the right tools.

In bearish market conditions, prices are falling and the possibility of loss is pretty good. What is worse, it is not always possible to tell when bearish conditions will end. Therefore, if you invest during such market conditions, you may have to suffer some losses before bullish times return and you're able to realize a profit. For this reason, many investors decide on short selling or fixed income securities and other more conservative types of investment. 


Defensive stocks are another good option that remain stable during bearish conditions. On the other hand, some investors see bearish market conditions as an ideal time to invest in more stocks. Since many people are selling off their stocks -- including valuable blue-chip stocks -- at low prices, it is possible to set up long-term investments that will prove valuable during bullish times.

While every investor loves to see the upswing in prices during a bull market, the wise investor will be able to handle a bear market as well. Whether you are just beginning to invest or are an experienced investor, learning to deal with various market conditions you neen not panic but decide patiently on investment.

The best way to make money, regardless of the cycles of bull and bear markets, is to create a varied portfolio of investments, and to maintain sufficient liquidity to ride out the tough periods without needing to resort to panic selling.

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