Truth To Bull Markets Can Make You Money – Bear Markets Can Make You Rich?

The aim of anyone in business is to make more than they invest. However, the rise and fall of prices of stock can make business a huge risk. It takes proper planning, calculations, and alertness to know what is going on in any financial system and how best to key into it. Bull markets and Bear markets are used to refer to the period of rising and fall of stock prices respectively. These price fluctuations can either make you rich or make you broke, depending on how well you can take advantage of the situation.

What is a Bull Market?

A bull market is a situation in a financial system when the prices of stocks start to increase or when it is expected that the prices will increase. This situation is not only common with stocks but also happens with bonds, currencies, real estate, and commodities. Investors are said to be “feeling bullish” when they think that the price will continue rising. This makes them invest more with the hope of making more gains.

What is a Bear Market?

As opposed to the bull market, in this situation, the prices of stock and other securities start to or are expected to drop by 20%. Investors are said to be “feeling bearish” when they think that the fall will continue for a long time. This causes them to stop investing for fear of losing their money. A bear market may affect the overall market, or it may be specific to commodities and securities.

As seen with “Bitcoin” in the recent past, starting from mid-May, there was a severe fall in the price of the cryptocurrency such that at one point, it fell to as low as $29k. Because the price continuously decreased with no sign of increase, a lot of people started pulling out their investments and selling off their coins.

How to Make Profit in the Market at All Times

Truly, you can make money from bull and bear markets. However, you need to know how to take advantage of every market situation to be able to gain from them regardless of whether there is a rise or fall in market price.

How to Exploit the Bear Market

When everyone is panic selling in a bear market there are avenues to profit for those who time the market right.

Take Strategic Short Positions

A short position means selling off shares with the hope of repurchasing them when the price falls. If you foresee a decrease in the stock price in the future, you can sell your stock and wait for the time when the price starts to fall, and then you can buy them back and make an extra gain.

For instance, investors who foresaw the dipping of Bitcoin mentioned above sold their coins early and bought them back at a lower price when people started to sell out of fear and panic.

Make Use of Put Options

With put options, an expert has the right to sell stock at a particular price called the strike price until it reaches a specific date known as the expiration date. When there is a decrease in the price of a stock, the value of the put option increases, should the stock fall below the put option’s strike price, the seller can either sell the put option for interest or sell the stock at an increased strike price. Note that you will pay an option premium for this.

Short Exchange-Traded Fund (ETF)

This is also known as the inverse exchange-traded fund. Short ETF pays dividends that are the opposite of a particular index. This means that when an index rises by a specific percentage, an ETF drops by the same percentage. Similarly, a fall in the index will cause the ETF to rise at a proportionate rate.

Buying the Dip

If you’re risk-averse and shorting doesn’t seem like a good gamble, the best option is to time your purchases on the dip. Buying as the price drops on the way down in regular intervals known as dollar-cost averaging spreads the risk of any further dips and positions investors in a good place for any increase in price.

How to Exploit the Bull Market

Exploiting the bull market requires a similar strategy as the bear market. Here the techniques are in reverse.

Take Long Positions

In the long position, you buy stocks with the hope of selling them when the prices increase. You gain in long positions by selling the stock at a price higher than what you bought them.

Utilize Call Options

The call option is similar to the put option. But instead of selling, this time, you buy. Because of the increasing stock price, you can purchase at a low price and at a price higher than what you bought them.

Long Exchange-Traded Fund

Long ETFs imitate the movement of the index. An increase in index causes the ETF to increase as well and vice versa.

Final Words

By carefully observing the advancement and decline of the market line, traders can predict a rise or fall in price in the nearest future. When traders are able to make this reduction successfully, they can then apply any of the principles above to enjoy continuous profits regardless of an increase or decrease in market price.

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