Bull vs Bear Market: How to Tell Which One You Are In

A bull market is a sustained period of rising prices; a bear market is conventionally declared once a major index closes 20% below its recent peak. That 20% is a press convention, not a law of markets - nothing changes in the economy as an index crosses from a 19.9% decline to a 20.1% one. What matters is not the label but the regime: whether dips are bought or rallies sold, and whether your edge survives the environment you are standing in.

The 20 percent rule is a label, not a signal

The threshold exists because financial media needed a headline number. It is retroactive: the bear gets dated from a peak nobody recognised at the time, so the label arrives after much of the damage. It is asset-blind: 20% means nothing for crypto, where Bitcoin has dropped that much in a week inside uptrends and real bears ran 70-80% deep. And it is binary about something continuous: a 19% grind over eighteen months is more dangerous than a 22% crash that recovers in six. The S&P 500 has seen roughly a dozen bear markets since 1950, averaging near 35% over about 13 months - useful history, useless in real time.

Objective ways to read the regime

Price against its 200 day average. The coarsest useful filter: above it, long strategies have historically had the wind behind them; below it, a headwind. Its failure mode is the range, where price crosses repeatedly and the reading flips six times in three months.

The 50 against the 200. With the shorter average above the longer one, trend structure is intact. It is deliberately slow: it confirms rather than predicts, and has often turned bearish near a low rather than before the fall.

Breadth. The reading most retail traders skip, and the earliest warning. Ask what share of an index's stocks trade above their own 200 day average: above 60-70% is a broad bull, under 30% is broad damage. Divergence matters most. New index highs on deteriorating breadth mean a few large names carry the average while participation underneath has already turned.

The same strategy, two different expectancies

Take one ordinary setup: buy a pullback into rising support, stop below the swing low, target twice the risk. In a broad bull market it might win 55-65% of the time, with orderly losses. Run identical rules in a bear market and three things change at once. Win rate falls, often to 35-45%, because dips keep going. Losses get worse, because volatility gaps price through your stop instead of touching it politely. And correlation rises toward 1 in selloffs, so five diversified longs act like one oversized position.

The mirror trap catches short sellers. Bear markets produce the sharpest rallies on record: the 1929-1932 collapse contained a rally near 50% on its way to losing almost 90%. A violent rally is not evidence the bear is over; it is a feature of one.

The transition is where the damage happens

Sustained trends in either direction are survivable. The expensive part is the handover: a choppy range of months where neither playbook works. Dip buyers, conditioned by years of dips that paid, keep buying into the first real distribution. Trend followers who finally flip short do it near the low, then get run over by the next rally.

Three defences beat any indicator. Cut size when the regime is unclear: half your usual risk while price chops around the 200 day line costs little on a false alarm and saves a lot on a real one. Tag every trade in your journal with the regime at entry; after 100 trades you can split expectancy by regime, and usually one regime supplied the profit the other quietly returned. Write the rules down first, because the transition is when judgement is least reliable.

Indikora is built for that honesty: the journal records market context with each trade, so you see performance split by regime instead of guessing, and the coach holds your risk rules steady when conditions change.

Frequently asked questions

Does the 20 percent rule apply to crypto? Not usefully. Normal crypto volatility produces 20% drawdowns inside healthy uptrends, and real crypto bears run far deeper. Judge it by trend structure and drawdown from the cycle high instead.

Can a bull and a bear market exist at once? Across assets, yes, and commonly. It is also true inside one market when breadth is narrow: a few leaders can be in a bull market while the median stock is already in a bear one.

Should I stop trading in a bear market? Not necessarily, but shrink first and re-examine second. Reduce size, then check whether your journal shows the strategy working in falling markets. If it does not, sitting out is a position with a cost of zero.

Indikora is an AI-powered trading coach for crypto, forex, gold and indices - its journal tags each trade with the market regime, so you can see where your edge really lives. Try it free: https://indikora.com

This article is for educational purposes only and is not financial advice.