A bull market refers to a market that is on the rise. It is indicated by a sustained increase in stock market share prices. In such times, investors are convinced that the uptrend will continue in the long term. Typically, the country's economy is strong and employment levels are high. A bull market is a rising market. On the other hand, a bear market is one that is in decline. In bear market stock share prices are continuously dropping, resulting in a downward trend that investors believe will continue in the long-run, which, in turn, perpetuates the spiral. During a bear market, the economy will typically slow down and unemployment will rise as companies begin laying-off workers. Generally speaking, since the market is determined by investing parties’ attitudes, these terms also denote how investor's feel about the market and the ensuing trend.

There are several characteristics that are particular to whether a market is a bull or a bear overall. In a bull market, there is strong demand and weak supply for stocks. As a result of this, stock prices will rise as competition will drive the prices up. The opposite holds true for the bear market. There is a strong relationship between the market and an overall economic conditions. Since the companies whose stocks are trading on the exchanges are the participants of the greater economy, the stock market and the economy are strongly connected. A bear market is associated with a weak economy as most companies are unable to record huge profits because consumers are not spending nearly enough—this decline in profits, of course, directly affects the way the market valuates stocks. In a bull market, the reverse occurs as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.

How Do I React?

In a bull market, the ideal choice for an individual investing in stock market is to take advantage of rising prices by buying early in the trend and selling his or her stock shares when they have reached their peak. Obviously, determining exactly when the bottom and the peak will occur is impossible. Because on the whole, investors have a tendency to believe that the market will rise (thus bullish), investors are more likely to make profits in a bull market. As prices are on the rise, any losses should be minor and temporary. If investing during the bull market, an investor can actively and confidently invest in more equity with a higher probability of making a return.

Investing in a bear market gives a higher chances of losses because stock prices are continually losing value and the end is not often in sight. Even if you do decide to invest with the hopes of an upturn, you are likely to take a loss before any turnaround occurs. Thus, most of the profitability under bear market conditions will be found in short selling or investing in safer investments such as fixed-income securities. While in bear mode, an investor may also turn to "defensive stocks," whose performances are only minimally affected by changing trends in the market and are therefore stable in both economic gloom and boom. These are industries such as utilities, often owned by the government and are necessities that people buy regardless of the economic condition.