Decoding the Beast: The Hidden Characteristics of Bull and Bear Markets

 

If you want to survive the stock market, you cannot just look at the price of a stock. You must understand the underlying "weather" of the market.

The market operates in two distinct avatars: the Bull and the Bear. They don't just move in different directions; they have entirely different personalities, psychologies, and physical characteristics. If you can read the character of the market, you can master the most crucial element of investing: Timing.

Here is how to decode the true characteristics of Bull and Bear markets.

The Cycle of Hope and Despair

The greatest trick the market plays is making you feel the most secure right before a crash, and the most terrified right before a rally.

• The Bull Top: At the absolute peak of a bull market, hope is at its maximum. Every piece of news is good, earnings are stellar, and your neighbour is making money on random stocks. This euphoria is the ultimate warning sign.

• The Bear Bottom: Conversely, at the end of a bear market, there is zero hope. The media predicts economic doom, portfolios are decimated, and investors vow to never touch stocks again. As we discussed in our previous post, this total despair is exactly when the "bottoming out" setup begins.

The News Cycle: Ironically, bull markets start when bad news and massive problems are everywhere—they climb a "wall of worry." On the flip side, a bear market usually starts with just a little bit of "normal" bad news that the crowd brushes off, which then slowly and methodically increases into an avalanche.

Volatility and Price Action

Bulls and Bears move at entirely different speeds.

• Volatility: Bull phases are generally periods of low volatility. The market grinds upward slowly and steadily. Bear phases are defined by incredibly high, violent volatility.

• Corrections vs. Bounces: In a bull market, corrections are often time-wise (the stock trades sideways for months to cool off) or they are sharp price-wise drops that recover astonishingly fast as buyers rush in.

• The Bear Market Trap: Bear market bounces (relief rallies) are the exact opposite. They are vicious, sharp, and fast spikes upward that trick people into thinking the bull is back. But this is immediately followed by a slow, agonising "distribution" phase where big players slowly sell off their shares, bleeding the price lower.

The Angle of the Trend

Not all trends are created equal.

A healthy, sustainable bull market usually climbs at a steady 45-degree angle. It is strong, methodical, and pacing itself.

Bear markets, however, are inherently fast because fear is a stronger emotion than greed. If you see a market drifting downward very slowly and sluggishly, be careful: a slow bear is usually a trap. It is often just a shakeout to scare weak hands before the upward trend resumes. True bear markets are vicious and rapid.

The Final Move: Regardless of whether the market is going up or down, the last move in any direction is always fast. The final leg of a bull market is a vertical "melt-up" of pure euphoria. The final leg of a bear market is a vertical "capitulation" crash of pure panic. When the price action goes vertical, the end is near.

The Junk Stock Indicator

You can tell a lot about the market by watching the worst companies.

Low-quality, fundamentally weak stocks do not run throughout an entire bull phase. They usually only pop at the very beginning (when a rising tide lifts all boats off the absolute bottom) and at the very end (when investors get so greedy they will buy any garbage available).

In a bear phase, everything falls. However, while high-quality stocks might bend, the low-quality stocks break—falling faster, harder, and often never recovering.

How They End

Bull markets end suddenly. The music stops, a catalyst hits, and the drop is immediate.

Bear markets, however, take time to end. They require a long, boring bottoming-out phase to repair the psychological damage and transfer shares from impatient losers to patient winners.

The Bottom Line: Timing is Everything

The depth and duration of any correction directly depend on the size and time of the trend that preceded it. A 10-year bull market will not be corrected by a 2-month dip.

Understanding these characteristics is not about predicting the future; it is about recognising the present. When you understand the character of the beast you are facing, you stop reacting blindly and start timing your moves with precision.

- the trading job

The Recency Trap: Why Investors Are Blinded by the Present

If you want to understand why most people lose money in the stock market, you don't need to study finance. You need to study human psychology.

One of the most dangerous glitches in the human brain is Recency Bias—our tendency to weigh recent events far more heavily than historical data or future probabilities. We are biologically wired to react to what is happening right in front of us, and in the stock market, this primal instinct is a recipe for disaster.

Here is the psychology behind why the crowd always buys at the top, panics at the bottom, and completely misses the bigger picture.

The Illusion of the Straight Line

The human brain loves straight lines. It struggles to process cycles.

Because of recency bias, when investors see a stock going up day after day, their brain unconsciously projects that line into infinity. “If it’s going up today, it will go up tomorrow, and it will always go up.” This is what creates market bubbles. Logic goes out the window, valuations are ignored, and greed takes over because the recent data feels exceptionally safe.

Conversely, when a stock is in a free fall, the exact same psychological trap triggers in reverse. The mind assumes it will fall to zero. The panic is visceral. Investors look at their screens, see a sea of red, and cannot imagine a world where the stock ever recovers. They extrapolate the present moment into the permanent future.

They are entirely unable to step back and ask: Is this a permanent structural collapse, or just a temporary market cycle?

Falling for the Noise: News, Ratings, and Results

Because people are trapped in the "now," they desperately seek validation for what is happening at the current moment. This makes them incredibly vulnerable to the noise machine: sensational news headlines, quarterly earnings results, and rating agency downgrades.

Here is the secret market knows but the retail crowd doesn't: By the time the news is published, it’s already priced in.

When a stock has been falling for six months and a major rating agency finally releases a "Sell" or "Downgrade" report, the amateur investor panics and sells. They think they are reacting to new information. In reality, they are reacting to lagging information. The smart money saw the weakness months ago. The crowd falls for the headline because it justifies their current fear, completely missing that the worst might already be over.

Change vs. Rate of Change: The Ultimate Blind Spot

Perhaps the biggest psychological failing of the average investor is that they only see changes, but they are completely blind to the rate of change and the possibilities it brings.

Think of it like driving a car. If you slam on the brakes, the car is still moving forward, but it is doing so at a rapidly decreasing speed.

In the stock market, most people only see the direction the car is pointing. If a stock drops from 100 to 50, and then from 50 to 40, and then from 40 to 38, the crowd only sees one thing: It is still falling. Sell!

They are only looking at the absolute change (price is down). What they fail to see is the rate of change (the momentum of the selling is exhausted). The drop from 100 to 50 was massive. The drop from 40 to 38 is a whisper. The selling pressure is drying up. The "rate of deceleration" is the first clue that a bottoming setup—the newborn child we talked about in our last post—is forming.

While the crowd is panicking over the recent red candles, the visionary investor is looking at the slowing momentum and calculating the possibilities of a reversal.

How to Break the Cycle

To succeed in investing, you have to train your brain to fight its own nature.

Stop looking at the 1-day or 1-week charts. Zoom out to the 5-year or 10-year view to see the bigger picture. Stop letting today's news dictate tomorrow's strategy. Remember that markets breathe in cycles—what goes up exponentially will correct, and what falls irrationally will eventually find a floor.

Don't be a prisoner of the present. Look beyond what is directly in front of you, and start looking at what is possible.

- the trading job