Different Stages Of The Bear Market

The bear market is the period in the stock market that we don’t like. It represents a period where the prices of stock market securities fall by 20% or more from and it is usually characterized by pessimism and negative investor sentiment.

The bear market is the period in the stock market that we don’t like. It represents a period where the prices of stock market securities fall by 20% or more from and it is usually characterized by pessimism and negative investor sentiment.

In this period, a lot of people sell off their shares and the market is generally played by a lot of worry and panic. In understanding how to react in situations like this - as they always come, there is a need to understand how a typical bear trend takes place.

While there are different stages proffered by different market experts, there are three main stages that show up in a typical bear market and they were created as a result of specific patterns realized over time.

The Sharp Sell

The usual clear sound of panic in the stock market birthing a bear trend, is usually sharp. This kind of market is generally as a result of weak or crashing economic activity.

There might have been some form of widespread news causing investors to panic and sell off their shares. Since investors tend to react the same way, the usual reaction is that everybody starts selling off their shares in an attempt to cut their losses.

This first phase is the pandemonium where massive changes happen almost at the same time and over this period, prices tend to drop by 20% and above. This is the first phase.

The Suckers Rally

The term “Sucker rally” is a colloquial term in the stock market that refers to the temporary rise in an asset or in the overall stock market and it typically continues long enough for unsuspecting investors or buyers who want to cash in on the lower prices.

These buyers are referred to as suckers as they will end up losing money when price takes a dip again. This is usually as a result of speculation in the market which don’t last long.

Even though there could be very temporary highs - caused by the rush investments by the suckers themselves, the bear trend eventually continues.

All The Way Down

The last stage of the bear trend is where prices crash all the way down to really low levels. In this stage, market valuations are even more reasonable than what is happening in the stock market. and a general state of depression prevails regarding investments overall.

An understanding of these will help you plan your investments properly and also guide your decision making process especially in a bear trend situation.

Written by Lawretta Egba.