Home Forex Trading 101 Stock Market Terms Every Good Trader & Investor Knows

101 Stock Market Terms Every Good Trader & Investor Knows

The use of long positions in stocks, ETFs, and call options is appropriate in bull markets and periods of strong market performance. Short selling, put options, and short or inverse ETFs, on the other hand, are appropriate for bear markets and allow investors to profit on the market’s downturn. If you are investing for the long term (and that is what investing in a bull market is all about) buying and holding stocks is a great way to build wealth.

  • Money-losing companies often experience rapid share price growth during Bubbles.
  • Although it is hard to determine when the bottom and peak will take place, most losses will be minimal and are usually temporary.
  • Diversification is a risk management strategy in which an investor buys a variety of different stocks.
  • Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology.

Few companies can raise their dividends yearly for more than four decades without sometimes encountering high payout ratios. Medtronic is unlikely to suspend this streak, especially given the strength of its underlying business. Medtronic will double down on what it sees as high-growth opportunities, including diabetes care and robotic-assisted surgery, among others. Medtronic’s dividend remains one of the best reasons to buy the stock. The company has now raised its payouts for 46 consecutive years and is racing toward Dividend King status. Only a global issue — such as a pandemic — could seriously disrupt this level of diversity.

Characteristics of a Bull Market

A bear market is typically defined as when stocks fall by 20% or more after a 20% peak. If you are in your 20s, 30s or even your 40s and are investing for a far-off goal, like retirement, strive to hold onto your stocks and keep investing during any market. If you’re investing in a diversified portfolio, you crafted your investment strategy and holdings with both bull and bear markets in mind. A bear market is often caused by a slowing economy and rising unemployment rates. During this period, investors generally feel pessimistic about the stock market’s outlook, and the changes in the stock market may be accompanied by a recession. But a bear market doesn’t always indicate that a recession is coming.

There are several other types of investing strategies typical for a bull market. They often vary from bear market strategies due to more favorable market conditions. Having a higher stock allocation in a bull market is optimal as there can be more returns, whereas in a bear market investors remain more cautious.

  • For more help navigating a bull market, consider speaking with an investment professional.
  • A Widow and Orphan Stock is a low-risk stock that pays a high dividend.
  • The company manufactures and sells various medical devices and equipment.
  • If you’re an investor or aspiring to be one, you’ve likely heard the term “bull market” thrown around in financial circles.
  • During this period, investors generally feel pessimistic about the stock market’s outlook, and the changes in the stock market may be accompanied by a recession.
  • The difference between a Mutual Fund and an ETF is that a Mutual Fund has far more structure.

Because EBITDA excludes these expenses, it provides a more accurate picture of a company’s operating cash flow. This makes EBITDA a useful tool for comparing companies across different industries. Earnings per Share (EPS) is a measure of profitability you calculate by dividing a company’s profit or net income by the number of shares of common stock.

Bull Market of 1957-1961: The Cold War

A bear market occurs when the market experiences prolong price declines—typically when securities prices fall by 20% or more and there is negative investor sentiment. Stock prices are informed by future expectations of profits and the ability of firms to generate cash flows. A strong production economy, high employment, and rising GDP all suggest definition bull profits will continue to grow, and this is reflected in rising stock prices. Low interest rates and low corporate tax rates also are positive for corporate profitability. However, speaking of bullish trends, one of the major bullish trends in India, known as “The Big Bull Run,” was triggered by Harshad Mehta, a stockbroker in the early 1990s.

History of the term

They die when the market has changed fundamentally, when prices have risen too high or too fast, or when some other event deflates investor confidence in the market. No two bull markets are the same, but they last around 2.7 years on average. This is much longer than bear markets, which tend to last 9.7 months on average. Increased buy and hold is a variation of the straightforward buy and hold strategy, and it involves additional risk. The premise behind the increased buy and hold approach is that an investor will continue to add to their holdings in a particular security so long as it continues to increase in price. One common method for increasing holdings suggests that an investor will buy an additional fixed quantity of shares for every increase in the stock price of a pre-set amount.

How Long Does a Bull Market Last?

If investors believe the economy is good, they buy, creating a Bull Market. Most people understand basic stock market terms like Bulls, Bear, Long, and Short. But most do not know important terms like 10-K Report, Alpha, Bid-Ask Spread, Debt to Equity, or Fair Value.

Investor Psychology

Bears, however, are pessimistic and believe that a particular security, commodity, or entity is set to suffer a decline in price. The term “Google” has become a verb used in everyday language, and even Microsoft’s AI-induced Bing competitor couldn’t make much of a dent in that empire. Alphabet’s Google also benefits from a network effect, as does YouTube. Lastly, its cloud computing services typically carry high switching costs. In other words, Alphabet benefits from an economic moat from multiple sources, not to mention the company’s ability to generate cash to pour into research and development.

Since the financial crisis of 2008, the stock market has been growing. Despite some sharp decreases and market corrections along the way, prices have now reached an overall high. The longest-ever bull market started in 2009 after the housing crisis, and it ended abruptly with a sudden Covid-19 pandemic-induced stock market crash on the 20th of February 2020. More specifically, however, a bear market describes any stock index or individual stock that drops 20% or more from its recent highs. A bull market, on the other hand, typically rises 20% from recent bear market lows and reaches record benchmark highs. One smart thing to do is learn the principle of dollar-cost averaging.

What are the Advantages and Disadvantages of Bull Market?

Bull markets can last for an average of 3.8 years, but they can also last for much longer or shorter periods of time. The longest bull market in history lasted for 11 years, while the shortest lasted for just over a year. The longest bull market in history ended relatively recently during the pandemic. The S&P 500 generated returns of 400.5% over 135 months from 2009 through 2020 as the economy recovered from the Great Recession and the markets kept pushing higher. While the terms are relatively simple to understand, the impact a bull or bear market can have on your portfolio is undeniable. Both animals are known for their incredible and unpredictable strength, so the images they evoke about stock market volatility ring true.

A trading bot is a computer program that automates buying and selling securities. They are typically programmed using specific rules designed to optimize trading profitability. Technical Analysis uses stock charts, data, metrics, and mathematical formulas to predict future stock prices.

But one of the more often used explanations is that a bull on the attack swipes its horns upward, while a bear swats downward with its paws. Net Income is important because companies use it to calculate Earnings per Share (EPS). Some American analysts are downplaying Net Income in favor of other figures, such as operating income. Large Cap Stock or Big Cap refers to a company with a huge Market Capitalization.