Bullish and Bearish stock market cycles come every year, but an investor with bearish sentiment believes that a rise in the value of asset prices presents an excellent opportunity to trade those assets and get out of the market.
1 December, AtoZMarkets – Both bear and bull markets represent marvelous opportunities to make money. This article will help familiarize you with investments that can flourish both in Bullish and Bearish stock market.
Bullish and Bearish stock market
A bear market is defined as a drop of 20% or more in a market average over a one-year period. It is measured from the closing low to the closing high. Generally, these market types occur during economic recessions, when pessimism overcomes. The key to success is to use tactics and ideas that can generate profits under a variety of conditions. This requires uniformity, discipline, attention and the skill to take advantage of fear and greed.
Ways to gain in Bear Markets
The wreckage lies opportunities to make money for those who know how to use the right tools. These options will help you earn money in bear markets:
Taking a short position, which is also called short selling, occurs when you sell shares that you don’t own in hope that the stock will fall in the future. If it works as projected and the share price drops, you must buy those shares at the lower price to cover the short position.
A put option is the right to sell a stock at an assault price until a certain date in the future, called the expiration date. As the stock price falls, you can either execute the right to sell the stock at the higher strike price or sell the put option, which increases in value as the stock falls, for an earning.
A short exchange traded fund (ETF), also known an inverse ETF, produces earnings that are the inverse of an index. For example, an ETF that accomplishes inversely to the Nasdaq 100 will drop about 25% if that index surges by 25%. But if the index falls 25%, the ETF will rise equivalently. This inverse relationship makes short/inverse ETFs suitable for investors who want to profit from a downturn in the markets.
Ways to Profit in Bull Markets
A bull market occurs when security prices rise quicker than the overall average rate. These market types are escorted by economic growth periods and optimism among investors. Following are some suitable tools for emerging stock markets:
A long position implies buying a stock or any other security in expectation that its price will rise. The general objective is to buy the stock at a low price and sell it for more than you paid. The difference signifies your profit.
A call option is the right to buy a stock at a price until a stated date. A call option buyer, who pays a premium, anticipates that the stock’s price will increase, while the call option seller forecasts it will fall. If the stock price increases, the option buyer can exercise the right to buy the stock at the lower price and then sell it for a higher price on the open market. The option buyer can also trade the call option in the open market for a profit, supposing the stock is above the strike price.
Exchange-Traded Funds (ETFs)
Most ETFs follow a market average, such as the Dow Jones Industrial Average (DJIA) or the Standard & Poor’s 500 Index (S&P 500) and trade like stocks. Generally, the transaction price and operational expenses are low, and they require no asset minimum. ETFs seek to copy the movement of the indexes they follow. For example, if the S&P 500 increases 10%, an ETF based on the index will rise by approximately the same amount.
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