Recently, I’ve been observing market discussions and found that many people still have some confusion about what a bear market really is. Instead of passively waiting, it’s better to first understand what a bear market actually entails, so you can make more rational decisions during market fluctuations.

Let’s start with the definition of a bear market. Simply put, when asset prices fall more than 20% from their recent highs, it enters what is called a bear market. This logic applies not only to stocks but also to bonds, real estate, precious metals, and cryptocurrencies. A typical example is the U.S. stock market at the beginning of 2022, where the Dow Jones Industrial Average dropped from its high of 36,952 in January to 29,260 in September, officially signaling a bear market.

A bear market is different from a market correction, and many people confuse the two. A correction is a short-term pullback of 10-20%, happening frequently and lasting only a few weeks. A bear market, on the other hand, is a systemic long-term downturn, usually lasting about a year, with a deeper psychological and asset allocation impact.

Why do bear markets happen? Usually, there isn’t a single cause. Market confidence collapse is the most common—declining corporate earnings, consumers holding back spending, investors withdrawing funds—all leading to a sharp drop in stock prices. Overly inflated asset bubbles can also trigger a crash when no one is willing to buy the dip, amplifying the decline. External shocks like geopolitical conflicts, central bank rate hikes, or pandemics can also directly trigger market panic.

Historical patterns reveal some regularities. The 2008 subprime mortgage crisis saw declines of over 50%, taking five years to recover. The 2020 pandemic was actually the shortest bear market, lasting only one month, because central banks worldwide quickly implemented QE to stabilize liquidity. The 2022 bear market was driven by aggressive rate hikes by the Federal Reserve combined with the Russia-Ukraine war. The Black Monday crash of 1987 saw a one-day plunge of 22%, but lessons learned led the government to implement circuit breakers, which helped markets recover faster.

Regarding the definition of a bear market, there’s also a commonly confused concept called “bear market rally.” During a downtrend, a sudden rebound lasting a few weeks with a rise of over 5% is considered a rally, but this doesn’t mean a bull market has arrived. A true turning point requires sustained gains or an increase of over 20% to confirm a move out of the bear phase. Many people misjudge these rebounds and get caught in the wrong position.

So, how should one invest during a bear market? The first principle is to hold cash, reduce leverage, and avoid being forced out by volatility. The second is to selectively buy the dip—not all stocks are worth buying. Companies with high valuations and no real profits tend to fall the hardest and carry the greatest risk. Conversely, high-quality stocks with strong competitive advantages, when undervalued, can be gradually accumulated.

If you lack confidence in individual stocks, investing in broad market ETFs is also a good option, as they tend to rise when the economic cycle recovers. Another approach is short selling—since the probability of decline is higher during a bear market, using derivatives like CFDs to short can present opportunities. Many trading platforms offer demo accounts to familiarize yourself with operations; proper risk education is essential before trading with real money.

Ultimately, a bear market is not a disaster but a natural market cycle. The key is to understand the definition and mechanics of a bear market before it arrives, adjust your mindset, use the right tools, and both long and short opportunities will emerge. For conservative investors, patience and discipline are most important—strictly setting stop-loss and take-profit levels to protect capital and waiting for the next bull run. The market always offers opportunities to those who are prepared.