Whether you believe it or not everyone has a type. You can use a Myers-Briggs personality test, Zodiac signs, or even a person’s investing strategy to determine their style. While it’s not an all the time personality, the individuals that make up the market usually fall into one of two categories, Bulls and Bears.
The Bullish investors run with the uptrend. They are optimistic individuals who are convinced one way or another based on varied types of data that either the market as a whole or a specific security is set to appreciate in value based on its underlying economic reality.
While bulls are generally positive on the market, the ideal way for them to limit the risk is by positioning a stop-loss. The stop-loss is a selling order that triggers when the price of an equity position reaches or falls below a certain amount. This can be used to not only stop your losses but in the event the stock keeps rising the stop-loss position can be adjusted to help protect these new profits.
On the options side of trading, the risk can be limited by employing a vertical strategy. This is an option strategy that begins by buying a call at value n and then simultaneously selling a call and a strike price that is larger than n. Usually by one increment in the observed options chain.
On the other hand, a bearish investor believes the market is getting ready to tank so they will hibernate on investments. The average investor who would claim to be a bear at any given time would be focused on shorting positions or put strategies that increase in value as the underlying security decreases. Bears aren’t necessarily negative people, they just tend to have a more pessimistic view on the market or specific securities.
Bears, like Peter Schiff, are usually very quick to panic, sell, and are extremely hyper-gold investors. While gold is always a great investment to make, the short selling side of bear investments is a much riskier position. Theoretically, a stock can rise to infinity so when a bull buys a stock their risk is limited to the money they put into the market, while a bear who shorts can lose infinite dollars based on the reverse of the same theory.
There is no right or wrong strategy for investing because each trade has its own rules. As long as a trader understands their risk and the way the market will affect their position it’s genuinely not a problem. It begins to be a problem when people become greedy and follow other people’s ideas blindly just because they think it will work. There is no reason to rush making money because, in the long-run, the market will appreciate at rates that are frankly too stupid to ignore.
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