Bullish vs bearish: Analyzing the differences for beginners

Sometimes people on the news say things like "investors expect a bear market in the next year, while businesses hope to see the bull return." It can make you think of a carousel or a zoo with animals all around. Of course, bullish vs. bearish doesn't refer to either of our animal friends. Keep reading to learn what bullish or bearish markets are, how they differ, and strategies you can use to ride the bull market to financial freedom.  

How do bullish and bearish markets work?

Whether online or across the street, markets are anywhere goods and services are exchanged. It's tempting to think that bull or bear markets are different markets, but that's not exactly right. 

The financial terms "bullish" and "bearish" describe upward and downward trends in a market. So, regardless of the trend, the stock market functions in the same way and sells the same stuff — it's a matter of whether stock prices and the amount of trading activity are rising or falling. A bull market shows increases in market sentiment, higher trading volume, and higher returns for investors. Conversely, a bear market shows signs of the opposite. Investor confidence, trading volume, and profits all decrease. 

Bullish vs bearish: 4 key differences

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In this section, you'll read about four ways the bear and bull stock market differ in describing opposing perspectives on market direction. Put simply, bull markets go up and bear markets go down. 

1. Market sentiment

Nobody wants to invest in something they think will lose value. Investors want to know how other investors feel about the markets. Market sentiment tells you how investors feel about the stock market over a period of time. Stock market bulls and stock market bears are opposites. Do people feel confident their money will grow if they invest it in the market? If so, they would be considered a bullish investor. On the other hand, folks who think stocks are due for a market downturn would be considered bearish investors.

It can be hard to place a numerical value on feelings — think about that pain chart at the doctor with those silly emoji-type faces. Still, financial services try to track bullish and bearish sentiment by tracking historic data or even quickly combing through social media data using AI. Knowing how people feel about a certain market helps investors predict how that market will perform.

2. High and low trading volumes

Bear and bull stock market trading volume differs, too. Trading volume is how much people are buying or selling stocks over a period of time. There are a set number of trading days per year. Bullish markets see increased trading because people are confident they'll see returns. So, a bull trading expects a strong market. On the other hand, in a bear market, the number of trades goes down because investors fear their investments could lose value in the coming months. So, bear trading predicts a weaker financial market. 

3. The direction of price movements

Price movements also go in different directions for bears and bulls, so you'll need to check the stock charts. In a bull market, demand for shares of stock in a certain company are in higher demand, driving the price of those shares up. Conversely, a bear market sees lower demand for shares, which forces the value of those investments down. 

This is a basic result of supply and demand. If a grocery store over-orders and has too many bananas, it'll probably run a sale, knocking the price down. On the other hand, if it doesn't order enough apples, it has no incentive to lower the price and might actually raise it since a lower supply will mean an increased demand.  

4. Timeframe and implications for investors

It takes time to notice bullish and bearish trends. In the financial world, experts need to see two months' worth of data to declare a market bullish or bearish. More specifically, a bull market sees increases in trading volume and stock prices consistently for two months or longer, while a bear market sees losses in trading volume and stock price declines over the same amount of time. 

Investors need to be aware of these market trends so they can make appropriate financial preparations for the bear-market winter. Conversely, spotting a bull market just after the first couple of months can let them charge forward, investing aggressively. 

Basic investment strategies for bull and bear markets

Naturally, if market conditions shift, your investment decisions may have to follow — even if your goals may stay the same. For instance, imagine your short-term goals are saving for a house, while your long-term goal is to have investments in the markets help fund your retirement. 

In a bearish market, many investors are tempted to sell, even though it may not be the wisest decision. Selling those shares ensures you take a loss and guarantees you miss out on a potential rebound. For the more advanced investors, profits can be found in short-selling or other non-traditional practices during a bear market. 

In a bullish market, investors usually adopt a "take and hold" strategy, buying stocks and holding them indefinitely. Consider diversifying investments, not putting all your eggs in one basket. It can be tempting to feel like you're running with the bulls in Pamplona, but in all the hype, don't forget to stick to your financial goals and stay within your means. You don't want to get caught in the excitement, over-extend your investing budget, or take losses because you didn't notice market downturns. 

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¹Greenlight is a financial technology company, not a bank. The Greenlight app facilitates banking services through Community Federal Savings Bank (CFSB), Member FDIC.