There are two basic market descriptions used to ascertain the general direction of the market most times. Bull and Bear markets.
Bull Markets
The first one is known as the Bulls market which is used to refer to the market when it is generally rising, typically signaling a strong economic state of the market where gains are the order of the day. A bull market is typified by generally rising stock prices, high economic growth, and strong investor confidence in the economy. A bull market is therefore a financial market where prices of instruments (e.g., stocks) are, on average, trending higher.
The bull market tends to be associated with rising investor confidence and expectations of further capital gains. Simply put, bull markets are movements in the stock market in which prices are rising and the assumption is that prices will continue moving upward. During this time, economic production is high, jobs would be plentiful and inflation is low in an ideal situation. A market participant who believes prices will move higher is called a “bull”. A news item is considered bullish if it is expected to result in higher prices. Bull markets are generally characterized by high trading volume.
Bear market
Bear market is the opposite. A bear market is a situation of falling stock prices, bad economic news, and low investor confidence in the economy. What this means is that there is economic downturn, coupled with rising unemployment figures and of course inflation.
A bear market tends to be accompanied by widespread pessimism. A key to successful investing during a bull market is to take advantage of the rising prices. For most, this means buying securities early, watching them rise in value and then selling them when they reach a high. However, as simple as it sounds, this practice involves timing the market. Since no one knows exactly when the market will begin its climb or reach its peak, virtually no one can time the market perfectly. Investors often attempt to buy securities as they demonstrate a strong and steady rise and sell them as the market begins a strong move downward.
A proven key to successful investment during a bearish market is to invest in small proportions in historically dividend paying companies. Where possible invest in big corporations that have records of gliding through hard economic times successfully. Don’t invest too much on a single stock. You can also diversify your investments into stocks that can never be out of demand. In order words, invest in companies that have long history of survival. When the stock market slides downwards for a longer time – the market becomes bearish, the money you invest buys more shares and the stocks you possess have less value. Bearish situation gives you opportunity to build up more equity than when the market is soaring.
It is believed that bearish trends follow after a bullish trend and therefore means that a bullish trend is a point to a bears market. Investors who believe in watching the market will buy and sell accordingly to change their portfolios. Speculators and risk-takers can fare relatively well in bull markets. They believe they can make profits from rising prices, so they buy stocks they believe will gain value. Growth is what most bull investors seek. Most long term gainers have always taken advantage of the bears market to accumulate based on the tips given above.