Bull Market

A bull market is a status regarding the market as a whole or single security which is contrary to a Bear Market meaning that a Bull Market consists of rising assets/security prices. Rising prices are a result of high investor confidence and expectations. Note that a Bull Market is both based on numerical statistics derived from the market itself and investor mentality. This can be seen as when investors have high confidence levels about their investment portfolio they are called bullish.     

What is a Bull Market?

A Bull Market is a long-term trend occurring over several years or months and occurs when a given country’s economic standpoint is strong and healthy and when employments rates in the said country are high. To add, in a Bull Market it is common to see Demand for a stock is greater than supply, this is what drives share prices upward as there is a larger amount of money to be spent amongst a given population during a Bull Market, and this results in higher profit for given companies again resulting in higher share price. However, note that Bull markets are not, all the same, each one can be different in terms of length and strength (the rate the market grows at).

In terms of Investor mentality during a Bull Market, Bullish refers to investor optimism and Bulls or Bullish people are those who think the market is rising. For example, if said investors are Bullish about a given stock they will often rally behind it by investing in it. Bears or Bearish people are those who think the market is declining and if said investors are Bearish about a given stock they will sell their position or short sell the given stock. Although, it is not uncommon to see investors who are both Bullish and Bearish at any given point or may be Bearish about a given stock but Bullish about the market as for both bull and bear markets people as a whole tend to follow other people in their beliefs.

For example, Some will get in fearful when others get fearful and some will get excited when others get excited which is It is important to detach yourself from the crowd and base your opinion of either bull or bear based on facts but those which are told to be certain by other people.

 

Understanding Bull Markets

Bull Markets are a product of investor optimism, investor confidence, and investor expectations and it is hard to predict when Bull markets will occur as investor psychology can play a big part when it comes to influencing the market. Although, there is no absolute way to determine/identify a bull market but a common way to identify a Bull market is when stock prices rise by 20% from previous lows over a given period. This usually occurs after a 20% decline in stock prices and before the second decline of 20%.

Characteristics of a Bull Market

Bull markets often take place during high economic strength or while it is in the process of increasing, or when GDP is high, and they commonly occur during low unemployment rates which, in turn, boost company profits.

As mentioned earlier the Demand for stocks is higher than the supply during bull markets. Investor confidence is high and will continue to climb during a bull market as many are eager to buy yet those same people are reluctant to sell to not concede their position. Lastly, during a Bull Market, there will be a greater amount of investor participation, i.e. more investors will flood into a bull market with money ready to spend due to high prices and market positivity.

Bull vs. Bear Markets

The opposite of a Bull Market is a Bear Market which consists of low prices, low investor optimism, and low economic downturn. Nonetheless, the words bull and beer don’t just from any random place, these terms are used about the market due to the way these animals attack their opposition. For instance, a bull attacks by thrusting its horns in the air, the same way the stock market rises high during a subsequent bull market. Whereas a bear swipes downwards, the same way a bear market trends downwards. Overall up is bull, and down is bear.

Similar to bear markets bull markets also have 4 phases which consist of growth, then peak, correction/contraction, and finally trough or a decline or slowdown in market activity. The beginning of a bull market often indicates a rise in expansion for the market itself. I.e. new highs, etc. Although investor psychology plays a part in influencing the market it is common to see investor confidence higher well before GDP or the market itself begins to tick up. The same goes for a bear market, investor pessimism will be prominent and GDP will decrease well before a recession occurs.

Retracement Additions

A retracement is a slight reverse in the general trend in a stock’s price and they occur during a bull market as stock prices still move down as it is unlikely all a stock will do is increase. In turn, there are likely to be small dips in a stock’s price in a short period throughout a bull market. As a result of this, some investors take advantage of retracements and will move in to buy during these retracements. Fundamentally the method goes that is you buy at these positions assuming the bull market continues the price of the security will quickly rise from said retracement providing the investor with a better than average position compared to other investors that will buy outside of said retracement.

How to Take Advantage of a Bull Market

There are many opportunities to make money during a bull market a common one is to buy early at the beginning of the said bull market and then simply sell during its peak before the eventual decline. Although, it is hard to determine when the point of both bottoming and peaking will occur, regardless, most losses during a Bull Market are minuscule and often temporary.

Buy & Hold

What is most common among traders during a bull market is the buy-and-hold method. This is basically when you buy a security at a given price and hold it to potentially sell at a later date. This strategy is risky cause unless you are to map your charts daily an investor never knows if the position they bought at will make them profit it is a matter of investor confidence in that position. Essentially, why buy if you don’t think the stock is going to rise. This clues into why investor optimism is a big part of the market and a bull one at that. In reality, the confidence that is produced by investors when they buy these positions to hold them helps fuel the market and the method itself.

Increase Buy & Hold

Increase buy and hold is essentially a riskier version of the standard buy and hold. This method is the process of continuously buying a stock and adding to the amount held so long that the stock continues to rise in price. Commonly what is seen is an investor will buy a new position with a set amount of shares for every increase in the stock’s price by an amount pre-set by the investor.

Full Swing Trading

One of the more aggressive ways of profiting in a Bull market is the process of swing trading. Investors using this strategy are always active on their investment or the given stock they want to invest in, unlike buy and hold traders, and they essentially take advantage of short selling and or other techniques to make the maximum amount of profit as certain shifts take place during a bull market.

Are we in a Bull Market Today?

Despite the crash during 2008/2009 we are in a strong bull market as of right now. Prices since the said crash have dramatically risen to all-time highs well over 10 years after despite some hiccups along the way.

What Makes Stock Prices Rise in a Bull Market

Bull markets can be influenced by many things whether it be a growing economy, high expectations amongst investors, high GDP, high employment rates, low-interest rates, and low corporate tax rates, all of which indicate and coincide with a present/active bull market.

Why Do Bull Markets Sometimes Falter and Become Bear Markets?

Raises stock prices can falter during a recession, a spike in unemployment, etc. Nonetheless, events like recessions often result in investor pessimism and negative outlooks for future security prices. These occurrences are the first steps that can often turn a bull market into a bear one especially during a recession when investors are fearful about their earnings and reduce risk by no longer buying rather than taking risky positions.