What is a bear market
A bear market is a prolonged fall in the price of a market, such as a stock index, a commodity or a currency, that is large enough to cross the percentage decline from the recent peak that analysts and news outlets commonly use as the threshold.
In plain words, prices have been falling for weeks or months and the drop from the high is deep, not a short dip.
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Bear market vs bull market
| Bear market | Bull market | |
|---|---|---|
| Direction | Sustained fall | Sustained rise |
| Measured from | Recent peak | Recent trough |
| Typical mood | Fear, selling, flight to quality | Optimism, buying |
| Related term | Capitulation near the low | All-time high near the top |
For the opposite case, see Bull market.
Worked example (hypothetical)
Take an imaginary stock index called "Index A".
- Index A reaches a peak and then starts to fall.
- It drops for several weeks. At first the fall is smaller than the bear market threshold, so commentators call it a market correction.
- The decline continues until the closing price is below the peak by more than the threshold. From that close, news reports say Index A has "entered a bear market".
- The bear market is then dated back to the original peak, not to the day the threshold was crossed.
To measure the fall yourself, take (peak minus current price) divided by peak. The percentage tools on the calculators page can do this for you.
Where you see the term
- News and market reports: headlines such as "index enters bear market" or "bear market rally".
- Research notes and fund reports: used to describe the phase of the business cycle and how a portfolio performed in it.
- Charts and platforms: trading platforms such as MetaTrader 5 do not label a bear market. You see it as a series of lower highs and lower lows on the chart of an instrument, for example in stock indices.
Precise definition and edge cases
- No official body defines it. The threshold is a market convention, not a rule from an exchange or regulator.
- Close vs intraday: most sources measure on closing prices. An intraday dip below the threshold that recovers by the close usually does not count.
- Start and end dates are set afterwards. The start is the prior peak. The end is usually the trough, confirmed once prices rise from it by a set amount or reach a new high.
- Bear market rallies: sharp rises inside a falling market are common. A short rebound is not the end of a bear market. See dead cat bounce and catching a falling knife.
- Cyclical vs secular: a cyclical bear market lasts months. A secular one describes a falling or flat trend over many years.
- Currency of measurement: an index measured in US dollars and the same index converted into rupees can give different results, because the exchange rate also moves.
Falling markets often bring larger and faster price swings. With leveraged CFD or forex positions, losses can build quickly in either direction. See risk management.
Frequent questions
What does bear market mean in simple words?
A long, deep fall in prices from a recent high.
Is a correction the same as a bear market?
No. A correction is a smaller fall. A bear market is a fall large enough to cross the commonly used threshold.
Who decides that a bear market has started?
Nobody officially. Media and analysts apply the convention to closing prices.
Can a single stock be in a bear market?
Yes. The term is used for single shares, commodities and currencies as well as indices.
Where can I find more terms like this?
In the trading glossary.
