Conclusion: steady hand on the tiller.
The evolution of bull and bear markets
- as the market moves from one wave to the next, first there is disbelief. The mood of the vast majority
- acceptance follows as people begin to make money and take ever larger positions. This is the period when buy and hold strategies yield good returns.
- growing profit balances, encourage the view that the trend will never end and euphoria takes over. Price appreciation is seen as a certainty and large positions, including those financed by margin are taken on. The crowd rushes on oblivious to risk.
- eventually demand, or supply is exhausted and the market begins to turn. Positions are liquidated as stops are hit and we move into a new period of disbelief.
- renewed acceptance follows. It is important to note that the fear engendered by a falling market is a more powerful emotion than the greed that fuels a rising one. So prices fall faster in a bear market than they rise in a bull
- following the sharp fall of the bear a period of depression follows when the crowd cannot believe that we shall ever see a recovery.