The name comes from the bear's manner of striking downward with its paw. There is no universally accepted formal criterion; a conditional threshold of approximately a one-fifth decline from the previous peak is often used.
It is important to distinguish a bear market from a correction — a short-term decline within an overall uptrend. The difference becomes apparent only in hindsight, so attempts to determine the current phase in real time are rarely successful.
The practical significance of this concept relates to investor behavior. A prolonged decline creates a desire to sell to stop observing losses — and the decision is made near the minimum, turning a paper loss into an actual one. Meanwhile, periods of strongest growth typically follow shortly after periods of greatest decline, and exiting the market forfeits this portion of returns.
Hence a practical consequence: resilience to downturns is established in advance — through aligning the share of risky assets with the investment horizon, rather than through attempts to time market exits and entries.