THE BEAR MARKET

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Source

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A period of falling prices in the financial market is known as a bear market. For novice traders, bear markets can be quite hazardous and challenging to trade. Investors may never return to the financial markets as a result of their ease in causing significant losses. Why is that?

Trading professionals have a proverb that goes, "Stairs up, elevators down." Accordingly, upward movements may be gradual and steady while downward movements are typically more abrupt and severe. How come? Many traders hurry to leave the markets as soon as the price starts to fall. They do that in order to maintain their cash position or to secure the gains from their long bets. This can quickly cause a domino effect, whereby sellers who are rushing to leave their positions cause even more sellers to follow suit, and so on. If the market is heavily leveraged, the decline may become even more pronounced. A dramatic sell-off will emerge from mass liquidations, which will have an even more pronounced cascading effect.

Having said that, bull markets can also have euphoric periods. Prices are rising quite quickly, correlations are larger than usual, and the bulk of assets are rising at the same time.

In a bear market, investors frequently have a "bearish" outlook, which means they anticipate a drop in prices. This also implies that general market mood is rather negative. This may not necessarily indicate that all market participants have open short positions, though. Simply put, this indicates that they anticipate a drop in price and may be attempting to position themselves properly should the chance arise.

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CONCLUSION

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In conclusion, the simplest course of action in a bear market is to remain in cash and wait for a safer time to trade. As an alternative, many traders would search for chances to develop short positions. As we all know, when it comes to trading, it is sage to move in the direction of the market trend.

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