The possibility of making money in the market increases when you understand stock market trends. If you know little about these trends, the chances that you will lose money increases.
Bulls and Bears
As you begin to study the market and get a better understanding of how it works, you will begin to hear some terminology used on a very regular basis. You will hear about market trends being variable and volatile in both the long and short term. The U.S. stock market has had some serious fluctuations over the years, with major crashes happening more than once. That said, the capitalist nature of the American economy has ensured that the stock market has always been able to recover from these crashes.
How is the market, or a single stock for that matter, able to rebound? When you see the stock value of a company plummet to a point where it essentially holds no value, it would be easy to assume that said company is likely on the verge of collapse and falling out of the stock market completely. Just when all seems lost, the company will announce a new product that captures the imagination of the buying public. It ends up being a product that everyone wants, and which stores are unable to keep in stock due to the high demand.
This is where the law of supply and demand comes into play, helping the company become a valuable asset once more. The success of the new product will see the stock prices for the company rebound, and they may even end up being of higher value than they were before the initial loss.
The market is constantly trending either up or down, and there are a couple of different terms used to describe these trends. When it is on a downward slide, with value dropping off steeply across the board, you may hear it described as being a bear market. The easiest way to remember what this term means is to think of how dangerous it would be to be chased by a bear. If you are in possession of a large number of stocks that represent a big chunk of your net worth, you are in danger of losing much of your value during a bear market period. This is, of course, assuming that you try to sell all your stocks during this time.
When faced with this type of market, you are advised to either sell before the stocks drop below the price you paid for them, or to hold onto them and wait for a rebound. Alternatively, if you are looking to get into the stock market for the first time, buying in during a bear market can be a very good idea. You will essentially be buying stock when they are at their lowest point, which means you just need to then be patient and wait for that recovery which almost always comes at some point. We will go into more detail about these options in a later article.
There will also be times when the market goes on a definite upward trend. The excitement and pace of the upswing is comparable to the running of the bulls in Spain. Your best vantage point for that event is indoors, which is why you will want to be in the market when a bull market is taking place. This is a time when you can really make some money and increase your net worth.
