Bull Market
The term “bull market” is used in investing and trading to denote a specific state of the market characterized by steady growth in prices (by 20% and more) with only episodic short-term declines, accompanied by general positive attitudes of traders and high expectations for the future performances. The term might be applied to the market as a whole, or to certain securities only. A bull market usually means a prolonged period of time, lasting for months or years. In some cases, a market with no actual increase in prices can also be called a bull market if there is a strong belief for it to start growing soon.
Bull markets, as well as bear markets, are inevitable parts of market dynamics, repeating over time and often reflecting a global financial situation. It has a direct correlation with a general state of the world economy, and a bull market usually occurs during periods of economic rise.
Bull Market essentials
As global changes and the duration of market trends are sometimes difficult to predict, some occurrences of a bull market might be recognized only post factum. The difficulties of an immediate determination of a bull market are connected with the fact that markets are often driven by emotional reactions, and trends might not reflect the actual situation, while speculative activities also add to the uncertainty.
The most common indicators for determining a bull market are globally accepted to be a rise of prices by more than 20% from the previous downfalls and optimistic views of market participants towards the future, with the expectation of the further growth.
Bull markets are additionally characterized by a certain imbalance between supply and demand of stock, as the demand to buy securities on the bull market is traditionally high, while not so many stockholders are willing to sell their shares and other financial instruments.
It’s important to remember that stock markets usually show a swift reaction to global events and significant news, while also mirroring the macroeconomic situation. Although the market often changes in advance, anticipating the upcoming economic shifts, in some cases months before actual changing takes place.
Still, if an economy is on the rise, or has already become strong, corresponding markets usually experience a bullish period. A bull market is likely to go together with good figures of GDP, low rates of unemployment, and a positive sentiment within a business sphere, which is usually backed by high returns and revenues of organizations.
So, considering typical indicators of a bull market, it’s safe to say that while some of them are easy to be measured, others might be interpreted differently depending on a situation, so it’s crucial to analyze all available aspects of a market situation when deciding to take action in a bull market.
Bull markets and their opposites
The opposite of a bull market is called a bear market, which is associated with significant price declines and pessimistic sentiment among traders and investors. A bear market usually describes a general situation in the stock market, or refers to noticeable decline of key indices, although it might also be used to describe a prolonged decline of single securities as well, if all the typical conditions are present, for example a volume of decrease in prices and a duration of time period. Bear markets often accompany challenging economic situations in certain countries or the world in general.
The terms “bull market” and “bear market” are considered to originate from an association with typical ways of attack of said animals – as a bear moves its claws downward when attacking and a bull pushes its horns upward. The corresponding markets behave in similar ways - a bear market is characterized by a general decline, and a bull market is characterized by an overall rise.
Ways of taking advantage of bull markets
As bull markets are famous for their price increasing, the most common strategy of benefitting in such circumstances is buying securities while their prices are rising, and selling them when the prices are the highest. The obvious difficulty is that it’s hard to predict what moment is exactly the best one to sell the securities away. But due to bull markets being usually rather comfortable periods for trading, most losses occurred during them tend to be not serious, or temporary.
There are several popular methods of gaining benefits on bull markets.
The most famous ones are the following:
- A Buy and Hold strategy, which implies purchasing a certain security and waiting for it to grow in price after some period of time, which requires patience and confidence on the part of a trader. The positive sentiment, typical for bull markets, stimulates such qualities, thus making this basic strategy popular on bull markets. There’s also a more risky version of this strategy, called Increase Buy and Hold, which involves buying more and more shares as the security in question continues rising.
- Retracement additions, which is based on the common fact that short temporary price dips still occur even during bull markets. Those dips are chances for traders to buy securities at reduced prices, which will then eventually rise according to the rules of bull markets. The risks are associated with a possibility of a bull market to end up unexpectedly.
- Full swing trading, which is considered to be an aggressive and complicated tactic. It involves many technics, with most of them being short- and medium-term trades, short-selling, and other risky moves. Such a strategy might be recommended to experienced traders, as it requires clear understanding of technical analysis and many other aspects of trading.
