Bull Market and Bear Market: How to Recognize Each Phase and Adjust Your Trading

Anyone who follows the market hears all the time that "we are in a bull market" or that "the bear is back." The terms may sound like folklore, but they describe something concrete: the dominant direction of prices over months, sometimes years. And that direction changes almost everything in practice, from position size to where it makes sense to place the stop.

This guide explains what defines each phase, how to tell a temporary drop from a cycle reversal, and what to adjust in your trading when the scenario changes.

Where the names bull and bear come from

The most repeated explanation is the way each animal attacks. The bull strikes upward with its horns. The bear strikes downward with its paws. That is why a rising market is called a bull market and a falling market is called a bear market. By extension, someone betting on a rise is "long" or bullish, and someone betting on a drop is "short" or bearish.

What defines each phase

There is no law that officially declares the start of a bull market or a bear market. There are conventions, and the one most used by the financial press applies to stock indexes: a drop of 20% or more from the latest high is usually called a bear market, and a rise of 20% from the latest low is called a bull market.

The number is useful as a reference, but what matters for traders is the chart structure:

• Bull market: increasingly higher highs and higher lows. Each pullback stops before the previous low, and price starts rising again.
• Bear market: increasingly lower highs and lower lows. Each bounce loses strength before the previous high.
• Sideways market: neither of the two. Price moves within a range without breaking either the high or the low.

A correction is not a bear market

No market rises in a straight line. Within a long uptrend there are pullbacks of 5%, 10%, sometimes a little more, which the market calls a correction. They are unsettling, but they do not change the structure: if the previous low holds and price goes back to making higher highs, the trend is still intact.

The opposite can also be misleading. Within a bear market, strong and fast rallies appear, the so-called bounces (bear market rally in English). They often attract those who think the bottom is in, and many end before surpassing the previous high. A bounce only becomes a phase change when the structure truly changes.

Signals that help identify the phase

No single signal solves everything, but some, together, provide a reasonable picture:

• Long moving averages. Price above the 200-period moving average, with the average sloping upward, suggests a bullish phase; the opposite suggests a bearish phase.
• Highs and lows. The simplest and most reliable reading: just mark the latest turning points.
• Reaction to news. When the market ignores bad news, buyers are in control. When it ignores good news, sellers are.
• Volatility. Drops with rising volatility and consecutive days of large moves are typical of a bearish phase.

What changes in your trading

Recognizing the phase is only worthwhile if it changes a decision. The main ones are these:

Preferred direction. Trading in favor of the structure gives you more margin for error than fighting against it. In a bullish phase, buying pullbacks tends to work better; in a bearish phase, selling bounces.

Position size. Since bear markets tend to be more volatile, the same lot size carries more risk. Reducing size when volatility rises keeps the risk per trade constant.

Stop distance. A stop that is too tight in a nervous market is triggered by noise, not by a wrong thesis. The solution is a wider stop with a smaller position, not the same lot size with a larger stop.

Patience with sideways action. Between one phase and another, the market often moves sideways. Trend strategies suffer during this period; sometimes the best trade is to wait for the structure to define itself.

Costly mistakes at turning points

• Trying to catch the exact bottom. Traders who buy every drop in a bear market pile up losses while waiting to be right.
• Confusing a correction with a reversal. Selling everything on the first 5% drop in a long uptrend often ends up being costly.
• Keeping the same position size in every scenario. Volatility changes; risk per trade should remain the same.

How it works at Safirion

At Safirion, the more than 130 assets (Forex, stocks, indexes, commodities, and crypto) are on the same screen, which helps you see whether a drop is limited to a single asset or affects the entire market. The spread is fixed and guaranteed by contract, including on days of higher volatility, precisely the days when reversals happen. Before changing your strategy with real money, you can test your phase reading in the demo account.

Risk warning: Trading leveraged products involves a significant risk of loss and may not be suitable for all investors. Past performance is not a guarantee of future results. Trade only with capital you can afford to lose.