Investing in the stock market is both risky and rewarding, but both of these things depend on how well the investor has done their research. With research, it’s also important that one has spent a significant amount of time in the market to know different market phases. This also helps to understand how the market reacts to different economic, financial or political conditions. In addition to this, the market offers two market phases, namely bull and the bear market. These phases offer different sub-phases, such as the accumulation phase, markup phase, distribution phase, and downturn phase. To invest in share market, one must understand these phases thoroughly to make better decisions. This article discusses the factors that make a bull or bear market and the different phases of these markets.
Factors Making a Bull or Bear Market
Different factors make a bull or a bear market, which makes it important to study them to predict different market conditions. This understanding can save investors or traders from potential losses. The factors are mentioned below:
Supply and Demand
Bull or Bear markets are characterised based on the demand and supply of the securities. If the demand for securities is more it’s a bull market, where prices keep rising. Similarly, when the supply of securities is more it’s a bear market, where prices keep falling. Both of these can be easily tracked by various share market apps India, such as HDFC Sky etc. In a bull market, an investor should buy the securities when prices are low and have a tendency to rise and vice versa for a bear market.
Economic Activities
Different economic activities take place in the economy which affects the market conditions. When the market is a bull market, corporate earnings increase significantly because consumers are spending more. Whereas when the market is a bear market, consumers tend to spend less which leads to lower sales and in turn lower profits.
Investor Sentiment
The bull or bear market also depends upon the investor’s psychology. This is because, in a bull market, an increase in stock prices builds investors’ confidence in the market and they end up investing their money. Whereas in a bear market, investors start to shift their funds from equity to fixed-income securities helping them save themselves from potential losses.
Bull and Bear Market Phases
Understanding market phases helps one make better investment decisions and can at times save from potential losses or help to earn significant profits. Also, the easiest way to track these phases is with the help of a share market investment app, as these apps can be easily accessed anywhere.
Bull Market Phases
A Bull market is when the prices of stocks keep rising, which boosts investors’ confidence. This at times also helps to have favourable economic conditions and provides the opportunity to earn significant gains.
Accumulation
When the market is already falling, and it continues to fall after reaching the lowest expected point. This is when the accumulation phase starts and investors start to become unsure because they start to consider potential risks.
Mark Up
During this phase, investors’ predictions start to turn positive and markets start to perform well. This motivates the general public to buy more units which eventually leads to an increase in the stock prices.
Distribution
In this phase, more and more people start to invest in the market which raises the fundamental value of the stock. This makes the price of the stock rise rapidly which in turn raises the trading volumes too.
Bear Market Phases
A bear market occurs when stock prices fall significantly, typically 20% or more from recent highs, accompanied by widespread pessimism and negative investor sentiment. Below mentioned are some of the phases.
Distribution
In this phase, the prices of stocks are high which boosts investors’ confidence. But this is the peak of the market and prices are about to fall after this point. This is why smart investors start selling their stocks after this point.
Mark Down
This phase comes when the number of sellers becomes more than the number of buyers. Prices start falling and the market enters a downtrend. This causes heavy losses to investors who keep holding their stocks and don’t sell at the right time.
Accumulation
In this phase prices start to rise again, building investors’ confidence. This is known as the recovery phase and lasts for a significant amount of time. Due to this, buying increases and in turn, economic conditions improve as well.
Conclusion
A stock market has two market phases namely the bull and the bear phases. These phases include distribution, markup/ markdown and accumulation. The bull market starts with the accumulation phase when the stocks fall below the expected level and are about to rise. Then comes the markup phase where markets start to perform well and finally the distribution phase, where the market reaches the peak point. Similarly, a bear market starts with distribution, where investors start selling their shares. Then comes markdown, where prices fall and the market enters a downtrend. Finally comes the last phase where stock prices rise again and buying increases.
