Buy stock bearish bullish
If the majority of investors are buying stock, then prices go up. If the majority of investors are selling stock, then prices go down. People buy or sell stocks largely as a result of the expectations they have about how the market will perform.
Generally speaking, if people think that the economy is going to do well, then they buy stocks. This is why it can be so difficult for investors to recognize the start of a bull market, but for those skilled enough to do so, they can expect to reap large financial rewards. Eventually there will come a time when the rewards outweigh the risks and investors start to buy again.
Investors who have been affected by the bear market avoid stocks or sell the stocks they own, and analysts talk down the market causing stock prices to fall even further. But eventually share prices drop to a level where their price outweighs their risk, and so investors begin to buy stocks again which then causes things to rise.
The Index of Leading Economic Indicators can signal a turnaround in the economy. Once an economy has hit the bottom, economic statistics slowly start to improve. One such economic indicator you should look for is the Index of Leading Economic Indicators LEI. From this information, you should be able to determine whether or not the economy is starting to recover, before you go ahead and make an investment. This can prove to be a far more accurate way of predicting future bull markets. Generally speaking, war or major natural disasters tend to be bad for the economy and the global financial markets as a whole.
However, some industries will benefit and so are likely to see the value of their stocks increase as a result of such events. In times of war, this is likely to include military or defence related companies.
When natural disasters occur, construction or aid companies are likely to benefit. Wars tend to depress economies, although some companies may experience tremendous gain.
This, however, tends to be a long and drawn out process, as although wars can lead to the development of new technologies and cause governments to push through more radical measures of change, in the short-term, wars tend to depress the economy as they often mean less public spending and increased taxes. So sometimes you need a major event to shock the system and break down the old order, so that a new, better and stronger order can emerge in its place.
Ideally, this should be at a growth rate of around 10 percent or higher. Growing earnings are important for several reasons.
The first, is that they indicate a company is being managed well, and second, increasing earnings offset the effects of inflation which erode the purchasing power of money. The mainstream media can sometimes be a useful indicator of the direction the stock market is going to take, because by the time they find out about an economic trend and report on it, that trend has usually already played itself out and is probably ready to change course.
A good example of this can be found with Amazon. So it is not uncommon for the media to report that the stock market is taking one direction, when in fact it is about to take another.
When the economy suffers, so do individuals and companies. Since in a bad economy people are unlikely to make major financial commitments, they choose to hold back on purchasing expensive items such as new cars, houses and luxury goods.
The industries that produce these items suffer as a result, because sales of expensive items start to fall and reach a low point. However, as the economy improves and people start to buy these expensive items again, these industries experience increasing sales and profit. Keeping an eye on such industries can therefore be used as a gauge of how well the economy is doing and which direction the stock market is headed. Book value reveals the real financial strength and standing of a company.
This is equal to total assets minus liabilities. The reason book value is important is because it tells you which companies have increasing assets and which companies have increasing debts. Book value therefore tells you the true value of a company, and is a more accurate financial description of a company than market value, which itself is often over inflated.
A company with strong fundamentals will have an increasing book value over time, which, in turn, will then drive up the market value and subsequently, the stock value. When looking at the book value of a company, there are several things that you should pay attention to:. Either one of these will increase book value, and are signs of a company with a strong financial future.
At a minimum, look for companies that have total assets which exceed total debt, preferably at a ratio of at least 2 to 1 or 3 to 1. The less debt, the better.
The media plays a powerful role in influencing the thoughts and actions of the public, this can then affect the direction that certain stocks go. When you hear good news about a company or industry in the media, there is a good chance that stock prices are going to go up because some investors will start buying those stocks.
There have been many examples in the past, for example, such as Enron, where the media has praised a company and caused stock prices to soar, only for them to later crash. The people who know best about how a company is doing are those who are on the inside; the managers and senior personnel.
When looking for insider buying, look for buys that occurred over several months. This is because insider buying typically does not occur over a period of a few days. The words of the right analyst can completely turnaround the performance of your stock. You should never make an investment decision based on what a stock market analyst tells you without doing the research yourself.
As what analysts say very often cause stock prices to go up or down. An influential analyst who is in the public eye and recognized by investors, can therefore be a very powerful person in the stock market. A company which targets its products or services to a particular age group can be a good company to invest in if you know that age group is going to expand in the future. As a stock market investor, you should therefore pay attention to growing trends in society.
For example, sections of the population that are growing or shrinking due to changes in age or ethnicity. The more consumers like what the company produces, the higher its profit will be and the higher its stock prices will be. If you are able to identify developing positive trends early, you may just be able to cash in on the next big product that everyone wants to own. A poor or deteriorating bond rating should be seen as a major warning sign about the financial health of a company.
If a company is likely to experience financial problems in the future, the value of its stocks in the stock market are likely to decline.
Conversely, a strong bond rating e. Making investment decisions based on rumors of a takeover bid, without first analyzing the fundamentals and looking at earnings growth, is a bad idea. But with that said, if you are considering buying stock in a particular company, and there are rumors of a takeover bid, be aware that the price of those stocks are likely to increase. However, whilst this is certainly good news for investors, a bull market does carry some risks.
One of the major risks is the effect that a bull market can have on how investors make investment decisions.
As if the stock market is doing well, and so the value of stocks are increasing, investors can very easily start to become overconfident. Some investors, for example, may then start to believe that their success is solely due to their ability as an investor, rather than the fact that they are in a bull market.
As a result, investors can very easily fall into the trap of making increasingly risky choices, using less discipline and relying on less diligence and research when buying stocks.
But when the market suddenly changes and catches them off guard, it is not uncommon for such careless investors to suffer big losses. Which is exactly what happened when the dot-com bubble burst. Many people lost money when the dot-com bubble burst due to making poor quality and hasty investment decisions. Another key to becoming a successful investor, is being able to identify the start of a bull market or the end of a bear market.
The more accurately you can do this, the higher your returns will be later on. If you are successful in spotting the start of a bull market, be aware of the following points before you purchase any stocks:. At the very tail end of a bear market, stock prices have pretty much hit rock bottom. For you as an investor, this is a great time to buy because it means you can pick up stocks at very low prices.
The trick, however, is not to just buy any stocks, but to purchase stocks in companies that show positive growth in terms of sales and earnings. Look for companies which have strong fundamentals. Do they have increasing sales and earnings from the previous year? Or are they in decline? Asking yourself questions such as these, should help you to gauge the financial health of a company and determine whether or not they are worth investing in.
Some stocks are more aggressive choices than others, and the choices you make largely reflect your risk tolerance. Although the price of virtually all stocks in a bull market tends to increase, not all do, and some may increase more than others.
For this reason, you need to identify the industries which you think will perform well when the market starts to recover, as these industries will give you the greatest return on your investment. In a bull market, try to diversify your investment portfolio by investing in different types of stocks from different industries. It is also a good idea to diversify by putting your money into non-stock investments, such as savings bonds, bank accounts and investing in precious metals, such as gold or silver.
Regardless of how well the stock market is doing, it is important that you never lose sight of your investment goals and your reason for investing in the first place. The type of investment strategy you choose to pursue largely comes down to your personal and financial goals. For example, a year-old is likely to have a very different investment strategy than a year-old.
Whereas the year-old may be interested in rapid growth with small cap stocks, the year-old may be happy to play it safe with large cap stocks.
Some investors may even have little money invested in the stock market because they have already reached their investment goals, and so are more interested in preserving their wealth than growing it. As a financial investor, being able to recognize the start of a bear market, or the end of a bull market, is absolutely critical to your success. If you invest your money at the wrong time for example, you are likely to purchase overvalued stock that will most likely decrease in value.
However, if you invest at the right time, you are likely to purchase undervalued stock cheaply and see a good rate of return on your investment later on. Take Irving Fisher, for example, who, as a well-known financial expert in , stated that stocks had reached a permanent plateau and that investments would continue to be bullish for the foreseeable future. A sign of an emerging bear market is very often this false placed optimism in the future. Usually, you will know when this optimism has reached its peak and that a bear market is just around the corner, when you start getting investment advice from friends, co-workers and celebrities on TV.
During a bull market, everyone thinks that they are an expert at investing because their stocks are doing well. When people think that the economy is doing well, debt levels tend to hit record highs as people choose to buy luxury items, often at the expense of going into debt. In , for example, just before the dot-com bust, debt levels hit highs in almost every category, such as in the corporate, consumer and mortgage sectors.
Having too much debt can result in a company going bust, just like Enron did, a company which, one year before its collapse, was being recommended by many analysts as one of the top ten stocks to buy for the long haul.
When you have debts to repay you have less money available to spend on other things. This then effects the stock market by reducing the income and profit of companies. The reason that debt is significant in terms of stock market investing, is because when a person accumulates too much debt, it can only be removed by repaying that debt or by filing for bankruptcy.
If debt cannot be repaid the economy starts to suffer, as there is less money available to spend which then affects everyone including consumers and producers. The recent Eurozone crisis provides a vivid example of this, as countries with high level of debt, such as Ireland, Spain, Italy and Greece, have seen decreased consumer spending and companies going out of business as a result. The key signs to look out for which could indicate an upcoming bear market, is an increase in the number of people filing for bankruptcy and rising national debt.
As more money is pumped into the system, more money is circulated through the banks. This money then flows into investment projects, but due to the abundant money supply, much of it is wasted by people who make poor investment decisions. The long-term effect of this, is that it imbalances the economic system which will eventually lead to economic downturns that can take many years to fix. If salaries do not rise in line with inflation, consumers will purchase fewer goods due to having less money available to buy things with.
Certain industries are more vulnerable to government intervention than others. Taxes, regulations or other government actions can easily break up a company and put its stock prices in decline. So if you are invested in a company which is sensitive to political developments, make sure that you are well-informed by reading the relevant financial publications. It therefore pays to stay up-to-date with such developments, as this will allow you to react quickly should anything happen that could affect the value of your stocks.
Any significant disturbances to the world order can have a negative impact on financial markets. So be on the look out for possible wars that could occur in the future, as these may signal a downturn in the market. Non-military world conflict can also negatively impact financial markets, so be aware of trade wars, tariffs and boycotts which could affect the value of your investments.
For this reason, you should always pay close attention to the earnings of the companies you are invested in. Or are they decreasing? And if so, why? Apple, for example, experienced years of low earnings and appeared to be in decline until Steve Jobs came back and turned it around. Apple is now one of the most valuable companies in the world. When investing in the stock market, you should ideally be looking for companies that have strong and rising sales or have the potential for such growth in the future.
If sales start to decline, then this will affect earnings which will then affect the value of your stocks. Sales for a company should consistently rise. Whatever the reason, if sales are slowing down be sure to find out why, as it could signal that your stocks are in decline.
When analyzing sales, look at sales in terms of what the company usually sells; its main products and services. Be on the lookout for stock market analysts who give glowing recommendations to companies that have no income and lots of debt. Heavy insider selling is one of the sure signs that a stock is in decline. This occurs when investors are trying to get out before the value of those stocks hit rock bottom.
For investors who own income stocks, dividends are their primary consideration because they act as an additional source of income. Sometimes, though, such as when a company is having financial difficulties, it may cut dividend payout rates.
Under certain circumstances, this can be a good thing for the overall health of the company. So look out for dividend cuts as they may be an early warning sign that a company is in financial decline, and that soon afterwards, the value of your stocks could also be in decline.
There may be some truth behind a story if everyone is reporting the same thing. Being a large company is no guarantee that you will be around forever. Large companies are not too big fail, especially if they are in a declining industry. If that industry is headed for decline, or is already in decline, then the decline of your company and the value of your stocks will be soon to follow. In addition to this, also pay attention to the health of related industries as problems in one industry can quickly spread to a related industry.
If you are concerned about your investments, protect them with trailing stop-loss orders. But in all likelihood you will never be able to accurately predict when the stock market hits rock bottom or reaches its maximum peak.
As the best you can really hope for is being able to identify the signs of an emerging bear or bull market. Below we look at several important points that you should take into consideration if you wish to be successful during an emerging bear market. Should you hold onto your stocks? Should you sell them?
What should you do in an uncertain market? If you find that you are in good financial standing, then you can probably afford to buy some stocks.
If, however, you are in a poor financial standing, then you may be unable to buy or you may be forced to sell the stocks which you currently own. During a bear market, the value of your stocks are likely to fall in value. Having money tucked away not only gives you peace of mind, but it will also give you time to think about what other sorts of investments you could make.
For example, while your money is earning interest in a bank account, you could be looking for undervalued stock with strong fundamentals that would make a good future investment. Trailing stops are the active use of stop-loss orders on a given stock, and determine the minimum level at what price a stock should be sold.
As a result, they are a favored method used by many investors to protect the gains they make on their investments. During an uncertain market you will often hear numerous analysts giving opposing points of view.
Watch this video on YouTube. During such uncertain times, the best strategy is usually to wait it out and see what happens. Although you may get it wrong, waiting it out keeps your money safe and this is what being a successful long-term investor is all about: If you can adopt this simple strategy, you will find stock market investing carries less risk and more long-term benefits.
Eventually, there will come a time when you decide to sell some or all of the stock that you own. For some investors, this can prove to be much more difficult than just picking up the phone and giving their stock broker the sell order. The first, is when the stock market is doing well. And the second, is when the stock market is doing poorly. Selling stock under certain circumstances can affect your taxes, which may then cause you to reconsider selling your stocks because doing so will raise the amount of tax that you pay.
Some investors who have owned a particular stock for many years develop an emotional attachment to it. This is especially true if that stock has been kept within the family for a number of years.
Emotional attachments to stocks can cause people to resist selling them, even if those stocks are performing poorly. During times such as this, investors should be aware of the following issues:. There is no such thing as a perfect investor who gets it right all the time. Everyone makes mistakes in the stock market, but if you can learn from those mistakes and then move on, you will find that you become a much more experienced and capable investor over time.
Owning stock for many years can cause some investors to feel as though those stocks are a part of them. This can then create a reluctance to sell, even if that stock is not performing well for them.
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All stock market investors should see stocks for what they are; a way to help you achieve your financial goals and not something to develop an emotional attachment to. Regardless of whether stock prices have gone up or down, there are two major reasons why an investor would consider selling their stock:. If you require money to pay off a debt or buy a new home with, then this may be a good time to sell some of that stock you own. Of course, there is always the possibility that the stock value may increase in the future, in which case, it would be worth holding onto.
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Recognizing the Start of a Bull Market During a bull market the value of the stock market increases as a whole. A sustained increase in earnings signals a healthy and growing company. During times of hardship people cut back on their spending. Insider buying by key personnel generally indicates a worthwhile stock. As the structure of a population changes new opportunities will emerge.
Bearish and Bullish Definition | What Does Bearish and Bullish Mean | Nadex Binary Options
A bond rating signals the financial health of a company. The prospect of a takeover can cause stock prices to soar. Buy low and sell high.
Some stocks carry greater risk than others. Not all industries will experience growth in a bull market. During a bear market the value of the stock market decreases as a whole. Wars are bad news for the economy. When earnings slow down so does profit. Slowing sales often signal a company in decline. The recommendations of analysts are not always quite what they appear.
Nobody wants to be the last person left on a sinking ship. Nobody is too big to fail if they are in a declining industry. Being a successful investor means knowing when to buy and when to sell. Look at your finances before you look at the stock market. Stop loss orders are used by investors to protect the gains they make. Stock Tips For Uncertain Times.
People sell to make a profit or to avoid a loss. Bull at New York Stock Exchange NYSE. What Is a Bull Market? How to Invest in a Bull Market. Bull or Bear Market: Young Peter Schiff — How to Invest in a Bear Market How to Invest in a Bear Market. Risks of Investing in the Stock Market What Does a Stockbroker Do?