Even if you aren’t a seasoned trader or have any financial expertise, you might have heard discussions on markets going bullish or bearish on the news. Bear market scenarios occur when the prices of stocks or currency pairs fall and the market index goes down. This scares the investors who start panic selling before the prices go down further.
If you intend to learn how to trade or want to take up a trading programme, this article can be a great introduction. Although you will cover what causes bull or bear markets in the course in-depth, this article takes you through some essential points you should know about bear markets before investing.
What causes a bear market scenario?
A bear market scenario happens when the prices of forex assets reduce by more than 20% from their recent high value. In such a case, the market index also falls and investors start selling their assets in bulk.
A recent example was when the S&P 500 market hit the bear market territory with values of stocks falling beyond 21% in June 2022.
More than often, a bear market sets in just before or after the world economy starts to move into a recession. Some of the key market signals include reduced hiring and wages, increased interest rates and inflation.
In such a shrinking economy, investors expect their profits to go down in the near future and start selling their assets, pushing the market lower. In many ways, a bear market might indicate tougher economic times and unemployment percentages.
However, on a positive note, bear markets tend to be shorter in time than bull markets. Therefore, you should focus on long-term gains during these periods.
5 facts you need to know about bear markets before starting to invest
Just like athletes taking rest days to restore their health, financial markets go through bear periods to reset from their high performances. Knowing what a bear market period can entail can help you make wise trading decisions that can minimise your losses and increase your profits.
Here are some important facts about bear markets before you start as a forex trader.
- Each market cycle (bear or bull) is measured from its peak to its trough. Hence, you can say a bear cycle starts when the asset prices drop at least 20% from their recent high.
- Forex assets can lose around 36% of their value on average in a bear market.
- There have been 26 bear markets in the S&P 500 Index since 1928.
- The average time between two bear market cycles can be around 3.6 years.
- Bear markets have been less frequent since World War II.
How can a trading programme help you learn more about bear or bull markets?
Comprehensive forex trading programmes train you rigorously for behaving appropriately during bear and bull market phases. You also learn what happens during each cycle and how they might affect your investments.
A forex trading course can also connect you with experienced traders and trading mentors who can coach you to devise better trading strategies.
Start looking out for reputed trading institutes that offer comprehensive forex courses and meet your entry criteria from today!
