The general direction of the share market is classified into two main types: the bull market and the Bear market. When the market is rising due to rise in stock prices, strong economic growth or strong investor confidence, it is referred to as the bull market. The bear market is the opposite scenario when the stock prices are falling, investor confidence is low or there is some bad economic news.
If a market participant believes that the prices will rise, he is called a “bull”. If any news causes the prices to rise, that news item is referred to as ‘bullish’. This trend of rise in stock prices can last for months or years. High trading volume is a general characteristic of a Bull market.
Normally, during a bull market, the economic production is high, the inflation level is low and employment opportunities are plentiful. In the Bear market, the situation is just the opposite. The economic growth is low, the inflation level is high and there is growing unemployment.
Investors take advantage of the rising prices in a bull market by investing early and selling when the prices rise. But this is not as simple as it sounds as no one can accurately predict the peak of any market. Traders buy securities when the market indicates a strong and steady rise and sell them if a strong downward trend is indicated.
Pessimism is a prevailing characteristic of a Bear market where the stock prices have been known to decrease for an extended period of time. If an investor believes that the market is expected to go down, he is referred to as ‘bearish’.
Bull vs Bear:
The stock market is highly unpredictable and anything can happen at any moment. Traders should exercise caution in keeping a track of their portfolio, else the Bull and Bear fight might prove to be devastating for them. It is important to understand the “support” and the “resistance” levels of stock to save oneself from wrong decisions and huge losses. We have the terms explained here:
Simply put, “support” is the level beyond which the falling stock is not expected to fall and “resistance” level is the level beyond which the stock is not expected to rise further.
Let us take an example to understand this concept better.
In case of the buyer, if a share is moving down continuously over a period of time, he may buy that share thinking that when it will rise, he will benefit. He can use the “support” value to buy the share since the price is not likely to fall beyond this point.
In case of the seller, if a share is showing an upward trend continues, he will like to gain maximum benefit by making an exit at the peak point. The “resistance” level will help him in identifying that point after which the price is likely to fall so that he can maximise his gain.
In short, the trader should follow a strategy for trading between “support” and “resistance” levels under which he buys at “support” and sells at “resistance”