What is a bear market and how to react to it?



For any trader, it is important to understand what is a bear market and how to profit from it. This article will provide a detailed analysis of the profitable bear market strategies.

What is a bear market?

To understand what is a bear market, first of all, we need to define the concept of a trend.

A trend is a constantly repeating tendency of price changes in the financial market. Trends always start and end for a reason. Analysts and experts can often identify the factors that change trends, stop them, or change them. And the most important thing is that such factors can be identified even before they directly affect the rate.

Thus, it is possible to predict changes in the price of an asset and make profitable deals based on it with the help of technical analysis. When we are talking about identifying trends, we are talking about analyzing the situation and making decisions at the moment, not looking for a cause-and-effect relationship afterwards.

It should be noted that the technical analysis works only as long as there is no unpredictable news. The significant news is able to change the trend regardless of what was happening to it before its appearance.

This is especially true for the cryptocurrency market, which is more susceptible to global events that can fundamentally change it than any other market. It is in the area of cryptocurrencies that new technological solutions appear every day, legislative regulations change, attempts to introduce blockchain into various areas of human life, and so on.

Now that we have somewhat understood the concept of a trend, let us define what does bearish market mean.

Answering the question  - what are bear markets? - we can say that this is a market condition when the price of the most assets is directed downward. Most traders are set up for selling currencies in order to fix profit. In other words - it is a certain period of the share price decrease of this or that company (or group of companies). This notion is used in relation to macroeconomics as a whole and separate sectors, stocks, futures, real estate and cryptocurrency.

What does bear mean in the stock market?

In professional circles, "bears" are traders who play for a fall, that is, they take a "short selling" position in the market. This term is contrasted with the other one - "bulls". Both nicknames are not given forever, but for a certain period or within one trade, as by the next trade, the trader can use another instrument and turn from a "bear" to a "bull" or back.  Bears and bulls in the stock market are the main participants of all stock transactions on all exchanges or trading platforms, such as WunderTrading and others.

Why this comparison? To understand what is a bear in the stock market, we need to remember the attack of these animals. It's all about the way these animals attack: the bear piles on his victim, pushing him down, and the bull, on the contrary, lifts his opponent on the horns, that is up. Traders who play on the upside, buying stocks, increase the demand for them, thus stimulating the growth of the price. And those who play down, put the stock up for sale, thereby creating additional supply and contributing to reducing the price. Therefore, in answer to the question - What are bull and bear markets? - is that bulls artificially raise prices and bears artificially lower prices.

We have understood bear and bull market meaning. Below we will tell you how to figure out if the market is bear or bull.  

What causes a bear market and how long can it last?

Bear market strategy definition can be determined by a  weak economy. Several factors contribute to this, such as low employment, slowing consumer spending, and declining business profitability. Many of these factors could lead to a recession.

Investors keep a close eye on key economic signals - hiring, wage growth, inflation and interest rates - to judge when the economy is slowing. However, the situation may not always follow a well-defined pattern. For example, in the case of the COVID-19 pandemic, some indicators were a little different. Things like widespread business closures, a surge in jobless claims, and social distancing measures were just some of the indications that the economy was headed for trouble.

When investors see the economy contracting, they expect corporate profits to decline in the near future. So they sell stocks, pushing the market down. In other words, bear meaning in stock market most often indicates rising unemployment and worsening economic times.

Bear markets tend to be shorter than bull markets - 363 days on average - compared to 1742 days in bull markets. According to WunderTrading, they also tend to be less serious statistically: They also tend to be less severe statistically, with an average loss of 33% compared to an average gain of 159% in a bull market. For example, the coronavirus bear market, which began on March 11, 2020, entered a bull market phase just a couple of weeks later, though the full economic damage of the virus is still impossible to determine.

What is considered a bear market?

As mentioned above, bear stock market definition can be done with technical analysis. Let's look at the basic parameters which characterize the situation when the market is dominated by bears:

  • Each successive decline peak is lower than the previous one.
  • The price of assets is almost all the time between the medium-term moving averages.
  • Negative news and trader sentiment on assets.
  • The number of buyers is much lower than the number of sellers.

What constitutes a bear market by U.S. standards? It is a situation when the price decreases by 20% in a period of two months or more. In fact, short-term market fluctuations can be more substantial, but they are usually quickly bought out by traders - if the price gets too low, it becomes more profitable to buy than to sell.

So bear definition stock market is in serious trouble in a particular company or in the economy as a whole. It takes a severe economic crisis to play it safe and profitable for a long time, when even heavily discounted assets are dangerous or not worth buying. Banks are losing money because borrowers can't pay them back, no one wants to buy pledged stocks, and it's very hard to get credit for business or investments in securities.

How to make money in a bear market?

In terms of the economy as a whole, what happens in a bear market is not the best course of action. The decline in prices during this time entails a decrease in business profits and as a result an increase in unemployment and other accompanying unpleasant factors. However, from a trader's point of view, it is all the same in what market to make money. It does not matter what is a bear market in the stock market, and how it affects the economy, a trader can make money in a bull market. There are several strategy options for this.

Short positions

Imagine a situation where you know for sure that the stock of a certain company is seriously overvalued and is likely to lose most of the value in a matter of days. Having this kind of information and knowing what is a bear market in the stock market, it would be foolish not to try to make money on it. If the matter was not about price cuts, but about the rise in the value of the shares, the issue would have been solved quite simply - it would have been enough just to buy the necessary amount of shares of this company, and after their rise in price, to sell them already at a higher price. In this case, the difference between the sale price and the purchase price would be your profit. And what to do in this situation? In this case, you should not buy the shares but sell them. To sell in order to buy them back later at a lower, much more favourable price. But how do you sell something that you don't have? In trading this question is quite simple: First, the trader borrows the necessary amount of stock from the broker. The trader then sells the borrowed shares on the exchange at their current price. After the price goes down, the trader buys the shares back and returns them to the broker, and puts the money left over from the manipulation into his pocket.


The term HODL is only used in the cryptocurrency market, so novice traders do not always understand what it means. Originally a result of a misspelling of the word HOLD, it caught on in the world of cryptocurrency investments. The acronym is now commonly deciphered as "Hold On for Dear Life", meaning positions that investors are not going to sell, no matter how low the price falls.

Thus, HODL is a strategy used by those who are willing to wait long enough. Since the cryptocurrency market is still quite young and today's high volatility, low quotes and sharp drops are often seen as just elements of market stabilization and formation. The guiding principle of HODL adherents is to preserve coins, withstanding any pressure. They hope that someday when the market stabilizes and digital currencies gain acceptance, their faith in the new technology will be rewarded.

The HODL strategy has become an integral part of cryptocurrency culture and is widely accepted by investors around the world. Given that most people believe that cryptocurrencies have come into our lives forever, HODL has great potential. This strategy is also considered a winning strategy during a bear market when cryptocurrency or stock prices are quite low.

Put Options

These are the right to sell stocks or securities at a predetermined price when a certain date is reached. The money paid to own such an option is called a premium. The value of a put option increases as the underlying stock falls. If the stock falls below the strike price of the put option, you can either exercise the right to sell it at a higher price and repurchase it on the open market or sell the option itself. You can use either your own plan or resort to a copy trading crypto strategy.

Buying protective stocks

These are stocks of companies that provide consumer goods, so their products are in constant demand regardless of the economic situation. Food and beverage manufacturers are a typical example of such companies. In a booming economy, investors tend to invest in "cyclical stocks". These are stocks of companies producing so-called luxury goods such as electronics, automobiles, etc. Shares of these companies tend to thrive in such an economy. However, in a down economy, good investors tend to turn to stocks of companies that meet the needs of consumers. This protects their investments, and they make money in a bear market.

Short ETFs

An ETF is an Exchange-Traded Fund that pools securities based on an index, sector, commodity or another asset. Such funds are another investment security strategy, which involves the collection of stocks that generate income when the underlying price declines. Using an ETF is similar to short selling, but the difference is that the return generated is inversely proportional to the market index. This inverse correlation of an ETF makes it suitable for investors who want to hedge against market declines. It's also a good way to diversify assets across sectors. Short ETFs allow investors to make money in a bear market without having to sell short. While they are not considered long-term investment strategies, they are an alternative to short selling because your only loss is the amount you invest in the ETF. What will the market bear usually saddens many traders who fear stopping trading until better times? Nevertheless, if you know the market well, this is another chance to make a good profit.

Finally, a few tips for cryptocurrency holders in a bear market:

  • Don't panic even if another crypto winter has started. There have been several such periods before, and each time the quotes of digital assets started to rise again.
  • Take advantage of different opportunities and ways to make money.
  • Prepare for a period of growth in crypto - any period of decline will one day end. Digital assets acquired by crypto winter can be beneficially sold later when virtual currencies begin to show positive dynamics.

Also, experienced members of the crypto community advise newcomers to immerse themselves in the information environment of the digital asset market. If you have knowledge in a bear market what does the stock market do and if you are always up-to-date with the latest news, you have more opportunities to make money.


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