The Wall Street Journal and other financial media outlets often use +/- 20% threshold as a rule of thumb to label bull markets or bear markets to market uptrends and downtrends. This way, a new 澳洲幸运5官方开奖结果体彩网:bear market has begun when an index or other security falls 20% or more away from its peak or trough. Likewise, we have entered a 澳洲幸运5官方开奖结果体彩网:bull market when prices rise 20% or more from a bottom.

This heuristic approach can produce some controversy at times because a financial instrument that sells off from $20 to $1 in a bear market will then subsequently be said to technically enter a bull market when it proceeds to gain just 20 cents off of its low, lifting the instrument to $1.20—marking a 20% rally! So how can we be certain if we're in a bull or bear market? Here we take a closer look.

Defining Bull and Bear Markets

In its simplest definition, rising prices signify a bull market while falling prices signify a bear market. With this in mind, you might think it would be easy to determine what type of market we're grinding through at any point in time. However, it's not as easy as it looks because bull-bear observations depend on the time frames being examined. For example, an investor looking at a 5-year price chart will form a different opinion about the market than a trader looking at a 1-month price chart.

Let's say the stock market has been rising for the last two years, allowing an investor to argue that it's engaged in a bull market. However, the market has also been pulling back for the last three months. Another investor could now argue th𒀰at it's topped out and entered a new bear market. In sum, the first argument arises from looking at two years of data while the second arises from looking at three months of data. In truth, both points of view may be correct, depending on the viewer's particular int💝erests and objectives.

Bear Market Phases

Unlike bull markets, which are usually defined by a prolonged market rally, bea🐷r markets us✅ually have four distinct phases to look out for:

1. The first phase is characterized by high prices and high 澳洲幸运5官方开奖结果体彩网:investor sentiment. Towards the end of this phase, investors begin to drop out of the markets and take in profits.
2. In the second phase, stock prices begin to fall sharply, trading activity and corporate profits begin to drop, and economic indicators that may have once been positive, start to become below average. Some investors begin to panic as sentiment starts to fall. This is referred to as 澳洲幸运5官方开奖结果体彩网:capitulation.
3. The third phase shows 澳洲幸运5官方开奖结果体彩网:speculators start to enter the market, consequently raising some prices and trading volume.
4. In the fourth and last phase, stock prices continue to drop, but slowly. As low prices and good news starts to attract investors again, bear markets start to lead to bull markets.

Time-Frame Matters

In reality, markets form trends in all time f🍷rames, from 1-minute to monthly and yearly views. As a result, bull and bear market definitions are relative rather than absolute, mostly dependent on the holding period for an investment or position intended to take advantage of the trend. In this scheme, day traders attempt to profit from bull markets that may last less than an hour while investors apply a more traditional approach, holding positions through bull markets that can last a decade or more. 

The Economy Matters

Bull and bear markets often coincide with the economic cycle, which consists of four phases: expansion, peak, contraction and trough. The onset of a bull market is often a leading indicator of economic expansion. Because public senti🐼ment about future economic conditions drives stock prices, the market frequently rises even before broader economic measures—such as gross domestic product (GDP) growth—begin to tick up. Likewise, bear markets usually set in before economic contraction takes hold. A look back at a typical U.S. recession reveals a falling stock market several months ahead of GDP decline.

Investor Psychology

Because the market's behavior is impacted and determined by how individuals perceive that behavior, investor psychology and sentiment affect whether the market will rise or fall. Stock market performance and investor psychology are mutually dependent. In a bull market, investors willingly participate in the hope of obtaining a profit.

During a bear market, market sentiment is negative as investors begin to move their money out of equities and into fixed-incomꦜe securities, and wait for a positive move in the stock market. In sum, the decline in stock market prices shakes investor confidence, which causes investors to keep their money out of the market—which, in turn, causes a general price decline as outflow increases.

The Bottom Line

There's no perfect way to label a bull or bear market. It's easier to focus on specific time frames or to consider the sequence of peaks and valleys on the price chart. Charles Dow applied this method with his classic Dow Theory, stating that higher highs and higher lows describe an uptrend (bull market) while lower highs and lower lows describe a downtrend (bear market). He took this examination one step further, advising that bull and bear markets aren't "confirmed" until major benchmarks—the Dow Industrial and Railroad Averages in his era—make new highs or new lows in tandem.