Decoded: What are bull and bear markets, and what is their significance?

Bull market and bear market are said to be two opposite phases in a market. In a bull market, stock prices continue to rise over a period of time, whereas in a bear market, prices continue to decline over a period of time.

The market rise can be attributed to several factors such as a positive economic outlook, strong corporate earnings, etc, and vice versa in the case of a declining market.
 
One of the commonly accepted definitions of bull and bear market phases is that when the stock price rises 20% or more from its recent low or 52-week low, it is said to have entered a bull phase. On the other hand, as and when a stock falls 20% or more from its recent peak or 52-week high, it is said to have entered a bear phase.
 
Can every 20% rise or fall be defined as a bull or bear phase? The answer is NO! Because in a volatile market a 20% fall after a steep rally can be termed a market correction. And, a 20% rise after a steep fall can be called a pull-back rally.
 
So, here’s another way of defining or confirming a bull and bear market phase based on market technicals. Chartists call it ‘Golden Cross’ & ‘Death Cross’.
 
The bull market is said to be confirmed when the 50-day moving average of the stock or index crosses the 200-day moving average. This is also called the Golden Cross.
 
We get the bear market confirmation when the 50-day moving average of the stock or index falls below the 200-day moving average. This is also called the Death Cross.
 
This brings us to the next question, what should one do in a bull market and bear market?
 
The answer is simple! In a bull market, look for buying opportunities on every dip. And in a bear market, look for selling opportunities on a rise.
 
Having said that, historically data suggest that bull markets tend to last longer when compared to bear market phases.
 
According to Forbes research, a study of the last 100 years reveals that the average length of a bull market is 2.7 years, while that of a bear market is less than 10 months.