Bear Markets

What are bear markets?
When learning about the stock market it is important to understand the different types of markets that can occur. Bear markets occur when the prices for securities are falling and are expected to continue to fall. While this market is most often is used in reference to the stock market, it can also be applied top any type of financial security that is traded including currencies, commodities, or bonds.

Bear markets are characterized by pessimism and stock investors only anticipate more loss in this market as selling continues and pessimism only grows. The economy is in poor shape, recession is in the works and stock prices continue to fall. This type of market is considered when a downturn of 20% or more occurs in multiple markets for over a two month-period. Bear markets are not to be confused with a correction. A correction is a short-term trend that lasts less than two months and it offers good entry points into the market. Many day traders will look to make a profit in this type of market through short selling. This is a trading strategy used when intraday trading that can product profits when stocks are falling.

Economists explain that bear markets must occur periodically in order to keep investors honest. There are other characteristics with this type of market that investors keep a look out for. In addition to falling stock prices, there are other factors that accompany this market as well but they are not absolute. These characteristics are described below.

Investor Psychology – Investor sentiment is fundamental to whether the market will rise or fall even if it is just perceived. When learning about how the stock market works , investors soon come to understand that the performance of the stock market and investor psychology are dependent upon each other. During bear markets, investor confidence is severely lacking which causes more and more investors to take their money out of equities and the stock market, which ultimately causes a decline in the stock market.

Supply and Demand – In this type of market the demand is much lower than the supply ultimately driving share prices down. More investors are looking to sell rather than to buy.

Weaker Economic Activity - In this type of market, people have less money to spend and more businesses are unable to produce huge profits since consumers are not spending their money. This inevitably leads to a weaker economy.

Please also read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis . It is the fastest way for new investors to quickly and accurately read stock charts when trading stock . Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical indicators , such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds .