In finance, a bear market is a market condition that occurs when the prices of shares decline or are about to decline. Figures may vary, but if prices decrease by 15 to 20% then the market is assumed as a bear market.
Some multiple indexes, such as Standard & Poor’s 500 Index (S&P 500) and the Dow Jones, are used to define a bear market.
The term “bear” has been used in finance since the early 18th century. One of the most well-known bear markets in the history of the US was the Great Depression during the 1930s.
We will, however, be focusing here on trading in a bear market.
As mentioned, the term bear market signifies a period in which investment prices decrease. However, if the period of declining prices is not long and is immediately followed by a period where stock prices are on the increase, the trend is no longer considered as a bear market but labeled, in financial terms, as a correction.
In general, a bear market resumes if the government goes into recession and if the inflation rate is high.
Trading in a bear market is extremely difficult and risky for shareholders. In the stock market, investors who usually attempt to make a profit from a price fall are known as bears. They are normally pessimistic about the given market condition. “Bearish” thoughts may be applied to several kinds of markets like commodity markets, bond markets, and stock markets.
On the other hand, investors who think that a particular share or market is going downward are termed pigs.
The stock market of several developed countries, the United States, for instance, has been fluctuating, since the bears as well as their counterparts known as the bulls, are fighting with each other to take control.
The stock market of US has increased only by 11% annually during the last 100 years. This shows that every single bear has incurred a loss.