The Short Version
A 'bull market' describes a sustained period of rising prices and investor optimism. A 'bear market' describes a sustained period of falling prices (commonly defined as a drop of 20% or more from a recent high) and investor pessimism. These terms describe the overall market or an individual stock's long-term trend.
Explain It Like I'm 10
Picture two very different weather seasons. A 'bull market' is like a long, sunny summer where everything feels great and prices of things keep climbing because everyone's optimistic and buying. A 'bear market' is like a long, cold winter where people get nervous, stop buying, and prices keep dropping. Just like weather, these seasons don't last forever — they eventually change.
Step-by-Step Example
- 1 The market hits a high point of 5,000 (on some index, like the S&P 500).
- 2 It then drops to 4,000 — that's a 20% decline from the high (a drop of 1,000 ÷ 5,000).
- 3 A 20%+ drop from a recent high is the common definition of a 'bear market.'
- 4 A smaller dip, say to 4,500 (a 10% decline), would just be called a 'correction' — milder and often shorter.
- 5 When prices climb back above the old high and keep rising, that stretch is described as a 'bull market.'
Quick Recap
- ✓ Correction: a shorter, milder decline of about 10% or more.
- ✓ Volatility: how much and how quickly prices swing up and down.