Lessons · Markets · Beginner
Bull and bear markets
Bull and bear describe rising vs falling regimes. They are useful labels - not precise laws of physics.
7 min read
What you will learn
- Define bull/bear in practical terms
- Recognize how leadership and correlations change by regime
- Avoid using labels as a complete trading system
Key terms
- Bull market
- A sustained period of rising prices and generally constructive risk appetite.
- Bear market
- A sustained period of falling prices; media often cites ~20% drawdowns as a threshold.
- Drawdown
- Decline from a prior peak to a trough - a measure of pain along the path.
1. Labels and thresholds
Convention helps communication: many commentators call a ~20% drop from highs a bear market. That threshold is useful shorthand, not a guarantee that the next day must keep falling.
2. What tends to change
In risk-on phases, growth and cyclicals often lead. In risk-off phases, defensives, cash, and balance-sheet quality matter more. Correlations can spike when fear rises - diversification helps less in the worst minutes.
- Volatility usually expands in bears and compresses in quiet bulls.
- Policy and liquidity (rates, credit) often shape the regime.
- Narrative leadership rotates: AI one year, energy another.
3. Using regimes without overconfidenceing
Ask what the regime implies for your horizon and risk budget. A long-term investor may stay allocated through noise; a shorter-horizon trader may cut size when volatility explodes.
Same stock, different regime
A cyclical manufacturer can look “cheap” on earnings in a boom and still fall further in a recession if profits are about to collapse. Regime context changes what “cheap” means.
Common mistakes
- Calling every 5% dip a bear market
- Assuming a label tells you the exact bottom or top
- Raising risk right after a rebound without checking volatility and leverage
Try this on StockWatch
- Compare index heat and movers on the home desk
- Read high-impact headlines for regime clues
- Review Upcoming macro dates that can flip risk appetite