TRADING GLOSSARY

Bear market: when prices fall and fear dominates

A bear market is a sustained period of falling prices, typically defined as a 20% or greater decline from a recent high. Bear markets are driven by deteriorating economic conditions, falling corporate earnings, rising interest rates, and investor fear and pessimism.

Characteristics of a bear market

Lower highs and lower lows across market indices, rising volatility (VIX), increasing correlation (everything falls together), declining trading volume on rallies and high volume on selloffs, negative economic reports, and a shift from greed to fear in investor sentiment.

Stages of a bear market

Stage 1 — Denial: The market drops from highs, but most investors believe it is a normal pullback and buy the dip. Stage 2 — Panic: Selling intensifies as economic data deteriorates. Margin calls force liquidation. Stage 3 — Capitulation: Widespread selling at any price. Investors give up hope. This often marks the bottom. Stage 4 — Recovery: Brave buyers begin accumulating while sentiment is still bearish.

Strategies for bear markets

Raise cash early. Shift to defensive sectors (utilities, healthcare, consumer staples). Consider short selling or inverse ETFs for hedging or profit. Reduce position sizes significantly. Focus on relative strength — assets that fall less than the market often lead the next recovery. Cash is a position, and being patient during a bear market preserves capital for the eventual recovery.

Disclaimer: This is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss.

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