It Doesn't Matter Whether It's a Bull or Bear Market

One of the more inane areas of commentary in the financial press is the definition of a "bull" or "bear" market.

Before I explain why, do you even know why they're called bull and bear markets?

The true origins are unknown, but there are some clues to its historical origins...

In the Middle Ages, a popular "sport" consisted of tying a bull or a bear to a stake by the neck or leg and then having dogs attack them. Spectators would gamble on how long it would take the dogs to take down the bull or bear.

At some point, there were battles between a bull and a bear. Check out this etching from one such match from California in 1876, published in Atlas Obscura...

There is also some thought that the "bear" side is associated with the downside derived from how the traders of bearskins in early America (mainly in New York) would buy and sell them. They would sell skins they did not have and eventually acquire them from trappers.

They obviously wanted the price to go down to make more significant profits.

The simplest version is that they represent the different ways the animals fight. Bears swipe down, and bulls push their horns up.

No one truly knows where these terms originated, but they are often used.

Regarding the stock market, the "technical" definition of these terms is a market that moves up or down by 20% from a recent peak or trough.

However, the way the terms are used implies that they are defining the general direction of the market.

In simplest terms, a bear market is one where most stocks go down. A bull market is where most stocks are going up.

A REAL bull or bear market is defined by a strong trend that drives the majority of stocks.

A real bear market is where stocks – even the ones of good companies with good results – go down... sometimes a lot.

In a real bull market, the most ridiculous of companies – ones with no revenues or real business models – can have stocks that explode!

In my mind, real bull markets are better defined as the "bubbles." A stock market where speculation drives areas (or sometimes the entire market) to unsustainable valuation levels.

The definition I disagree with is the idea that a bull or bear market is defined by a 20% move from the theoretical "peak" or "trough" because there's no way to know if it's the peak or trough.

Sure, in retrospect, you can identify it. But we've seen many times where markets have moved up or down 20% from recent levels and gone right back to where they were before. The 20% is entirely arbitrary and is misleading for investors.

Most of the time, the stock market isn't a bull or bear market. It's in a steady uptrend. This makes sense as it mirrors the path of economic and earnings growth.

Do you think we are currently in a "bull" market or something else? Tell us more in the comments section below..

Constantly thinking of the stock market as being in a bull or a bear – where a strong trend can push individual stocks – is a mistake.

The 20% move definition gives the media something to discuss and fill the airwaves, but it doesn't help you make more money.

Instead, it would be best if you focused on your process. As HX Trader readers know, this means entering a trade, knowing what you're looking for, and being disciplined about your entry and exit plan. If you're an investor, it means knowing what you're looking for over the long run and building conviction in your portfolio.

When we're in an actual bull or bear market – and watching strong trends move the entire market higher or lower – it will help you amplify your process. Never make your process dependent on one of those trends.

Check out Enrique Abeyta’s conversation with JC Parets on the HX Podcast.