Bear Markets Make Some Fortunes
Wednesday, 14 July 2010 07:35 | 
Written by Michael Swanson |
You have no doubt heard the terms 'bear market' and 'bull market' before. What do they actually mean? A bear market is when there is a widespread and sustained drop in the prices of stocks over a period of time - Normally considered to be at least a twenty percent drop over a period of two months. As people get scared and sell their shares, it serves to push down prices even further.
You have no doubt heard the terms 'bear market' and 'bull market' before. What do they actually mean? A bear market is when there is a widespread and sustained drop in the prices of stocks over a period of time - Normally considered to be at least a twenty percent drop over a period of two months. As people get scared and sell their shares, it serves to push down prices even further.
A bull market is exactly the opposite of a bear. Prices start rising and continue to rise with more than twenty percent for more than two months. Just as pessimism drives a market with dropping prices even further down, optimism drives a bull market upwards.
A bear market should not be confused with a simple market correction. Market corrections happen regularly and usually do not last more than a day or two.
It's easy to see how one can make money in a bull market. In fact, it's hard not to make money in such a market. But how can you make money in a declining market?
One such way is if you could accurately predict the end of the falling market and then buy a selection of top quality stock tips. Although you can use a variety of fundamental and technical indicators to help you with predicting the turning point, it remains very difficult. Even the best of traders often fail to correctly predict the turning point of a slumping market.
Of course you always have the option to sell stocks short. This is rather less complicated than it sounds: all that happens is that you borrow a certain number of stocks from a brokerage at the (high) price of today and sell it to a third party at the same price. If you were right and the market actually drops, you then buy the same shares at the new low price and return them to the broker.
A further course of action is to buy so-called put options, which increase in price when the market declines. Once again you have to be pretty sure it's actually a bear market which is still in a declining phase, otherwise you will lose the money you risked on the option.
You have no doubt heard the terms 'bear market' and 'bull market' before. What do they actually mean? A bear market is when there is a widespread and sustained drop in the prices of stocks over a period of time - Normally considered to be at least a twenty percent drop over a period of two months. As people get scared and sell their shares, it serves to push down prices even further.
A bull market is exactly the opposite of a bear. Prices start rising and continue to rise with more than twenty percent for more than two months. Just as pessimism drives a market with dropping prices even further down, optimism drives a bull market upwards.
A bear market should not be confused with a simple market correction. Market corrections happen regularly and usually do not last more than a day or two.
It's easy to see how one can make money in a bull market. In fact, it's hard not to make money in such a market. But how can you make money in a declining market?
One such way is if you could accurately predict the end of the falling market and then buy a selection of top quality stock tips. Although you can use a variety of fundamental and technical indicators to help you with predicting the turning point, it remains very difficult. Even the best of traders often fail to correctly predict the turning point of a slumping market.
Of course you always have the option to sell stocks short. This is rather less complicated than it sounds: all that happens is that you borrow a certain number of stocks from a brokerage at the (high) price of today and sell it to a third party at the same price. If you were right and the market actually drops, you then buy the same shares at the new low price and return them to the broker.
A further course of action is to buy so-called put options, which increase in price when the market declines. Once again you have to be pretty sure it's actually a bear market which is still in a declining phase, otherwise you will lose the money you risked on the option.
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