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Saturday, September 3, 2011

Bullish v/s Bearish stock markets

Stock markets have just two ways to go : upward or downward. Now upward trend can be accomplished when there is buying activity being seen. Basically Stock markets work on principle of "Demand and Supply", It is not literally demand and supply but demand here depends on company's performance and approach to changing work dynamics and economic conditions.

One has to first understand that when a stock price goes up, it has to come down. The timeframe when stock markets are rising is referenced as bullish and time when stock markets are witnessing selling is called Bearish. Since stock markets just implement an algorithm for Demand and Supply considering various stock factors(market cap etc). An artificial demand can be created in stock markets for company which is less demanding. It is often reffered as stock market scam but according to me it's hundred percent legal as Stock markets allow it, However now a days if a stock witnesses change of 20 percent in value in one day it is locked for that particular day. Many stock prices which rise 6-9 percent a day is often due to such buying or selling.

Big brokerage houses earn profits for their investors in almost similar way, As we all know that brokerage houses often go for short investment span. They pick a low value stock and start purchasing its shares from the market. Now since the demand increases that perticular stock price is sure to go up and once it reaches the threshold being set by money management companies they sell their purchased shares and earn profits easily. These all activities leads to bullish markets.

Bearish markets are those times when we come to know what is actual value of that company(ie value which is not affected by stock purchase by institutions etc) The best time for purchasing a stock is bearish time when stocks are undervalued and Institutional Investors take their money away for investing in gold. Legendary investor Warren Buffett always purchased in bearish times. You can read my take from Warren Buffett way of investing here.

Tips for Investing in bearish markets:

New investors often assume that they need to avoid investing during bear markets, and invest heavily during bull markets. This is not the case. Experienced investors know that you need to be able to invest in any sort of market condition, provided that you do so wisely. Each investor has a different strategy for dealing with a bull market or bearish markets. Many investors try to take advantage of bull markets by buying stocks as soon as the market gets bullish, and then starting to sell when prices seem to have reached their peak. The difficulty, of course, is that it is almost impossible to tell when the trend is beginning and when it will peak. In general, investors can take more chances with the market during a bullish phase. Since overall prices will rise, the chances of making a profit are good. One has to remember that "Investing in bearish markets is always for long time perspective"

Factors responsible for bearish and Bullish market trends:

Bullish factors:High employment levels, strong economy, and stable social and economic conditions generally build investor confidence and encourage investors to put their money in the stock market. Decreasing gold price might also come in here. these are basically bullish times when stock prices are overvalued.

Bearish Trends: When news like economy slows down, companies begin downsizing. Increased unemployment are airing it means that bearish sentiments are all around. Sudden happenings like tsunami, War, Earthquake and terrorist attack can also bring bears at stock markets.

So I hope now you must be clear of difference between Bearish and Bullish stock market trends.
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