A condition of a financial market in which prices are expected to rise or have already risen is known as a bull market. It is widely used in reference to the stock market. However, it can be applied to any trading options like bonds, real estate, currencies, and commodities.
Also, the bull market is reserved for an extended period which is a rise in the large portion of pricing. It is because prices continuously fluctuated during trading. It lasts for months or sometimes, even a year. To understand the market, dive deep into the article.
Understanding Bull Market
Bull markets are usually identified by optimism, investors’ confidence, and expectations concerning the continuation of sturdy outcomes for an extended period of time. It is arduous to predict consistently when the trends in the market are unstable. Also, psychological effects and speculations increase the difficulties.
However, there is no rocket science involved in identifying the bull market. You can speculate it when you witness a rise in the stock price by 20 percent or even by a bullish engulfing candle. It happens usually after the drop of 20 percent or declines by 20 percent.
Characteristics Of A Bull Market
Bull Markets usually take place when there is a strength in the economy or when it is sturdy itself. They are in line with gross domestic product (GDP) and when there is a significant reduction in unemployment. Also, it coincides with an increase in corporate profits.
Throughout a bull market period, you will also notice a rise in the investor confidence. Even the demand for the stock will be positive along with the entire tome of the market. There will also be a general increase in the amount of IPO activity.
However, some of the factors mentioned above are relatively easy to identify than the others. It means that you can measure corporate profits and unemployment, but couldn’t measure the general tone of the market commentary. You will also experience a weaker supply of securities and a robust demand. This is why investors will be more willing to either buy or sell securities. They take interest in the stock market to earn profits.
Bull vs Bear
Now we have learned about the bull market. The opposite of it is known as the bear market and is characterized by a decrease in the price. The term bull and bear is described in the market from the way both the animals attack their opponents. While a bull drives his horn up in the air, a bear strikes with its paw downward. Similarly, the rise in trend indicates a bull market, whereas a down in the trend is a bear market.
They coexist in the economic cycle in four different phases. They are expansion, peak, contraction, and trough. The beginning of a bullish market is known as an economic expansion because public opinion about the future economic climate is determined by stock prices.
The bear market is entirely opposite from the bull market. This market is set before an economic contraction takes place.
How To Gain Advantage From A Bull Market?
If you want to earn benefits from a bull market, you should consider early purchase since the prices are high at that point in time. This way, you can sell them when they reach their peak. While it is relatively difficult to pinpoint the exact timing of the low and high, losses are minimal and usually temporary.
Conclusion
As discussed above, the term bull and bear is derived from the way animals attack their opponents. Their actions are related metaphorically to the movement in the market. This means the rise in the trend is considered a bull market.
Also, this market is considered a sturdy, robust, and growing economy. Share prices are informed of future earnings expectations and the company’s ability to generate cash flows. When the production economy, high employment, and rise in GDP continue to grow, it is reflected in a rising stock price.
So, if you are trading in stocks, bonds, currencies, or other funds, identifying the bull market will help you in planning your trading strategy for earning maximum benefits.