It includes the financial market different market cycles According to the broad market environment.
In some periods, as we saw after the 2008-2009 global financial crisis, the world went through a period Major bull race That saw stocks rise to a record high. The same situation happened after the Covid-19 pandemic in 2020.
This article explains what a bull market is, how it works (and, of course, the best strategies for taking advantage of it).
What is a bull market?
The market is bullish The period when stocks and other financial assets are doing well. In most periods, the market takes place at the asset rise by 20% from its lowest period in the session.
For example, in the chart below, we see that the S&P 500 rose about 20% from its October low to its February high.
This means that it has entered a bull market during this period. The term bull market comes from the concept of a charging bull during bull fights.
in all, A real bull market is even stronger. In most periods, a bull market occurs when stocks are in a generally strong upward trend in a certain period.
Related “ How to understand stock market cycles
A bull market can last a few weeks or even a few years. A good example of a bull market is what happened after the 2008 global financial crisis. It lasted for more than a decade.
Bull vs bear market
A bull market is the period when financial assets are doing well. On the other hand, prof Alcohol market It is the period when the financial assets are not performing well.
Technically, a bear market is defined as the period in which a financial asset has a rally by 20% and more. A good example of this is found in Carvana’s inventory below.
As you can see, stocks have fallen more than 20% from their August 2021 high to their September low. Unlike the S&P 500 above, the stock has continued to decline as the situation worsens.
Another similar concept to a bear market is known as a correction. revision Defined as the period when a stock has fallen 10% from its highest point. in most periods, A correction can easily turn into a bear market If selling pressure occurs.
Reasons for a bull market
There are various reasons for a bull market:
Federal Reserve
First, it is Because of the actions of the Federal Reserve. In most periods, investors tend to trade in stocks and other assets when the Fed decides to maintain its dovish monetary policy statement.
This happens because other financial assets such as bonds are experiencing low returns. Some of the most significant examples of the latest bullish trend have been caused by a very pessimistic Fed.
Objective reasons
Second, bull markets happen because dominant themes In the market. This happens when there are major themes that attract investors to certain assets.
For example, in the past few years, we have seen many market themes such as technologyAnd electric carAnd Cloud computingand artificial intelligence among others.
Geopolitics
Occasionally, Geopolitics It could have an impact on the market. For example, the stock market can rise sharply when geopolitical tensions between the two countries subside.
A good example of this is what happened when the Trump administration reached an agreement with China. Before that, tensions had been running high as Trump sought to increase tariffs on Chinese goods.
earnings
The stock may enter a bull market when it is there Positive earnings. It is common for a stock to rise sharply when a company posts strong earnings and increases its future appreciation. The opposite is also true Because it can enter a bear market when it posts poor earnings.
There are other reasons for a bull market to occur, including a change of management, the end of a major investigation, and a new product launch.
How do you know we are in a bull market?
A common question among market participants is how to tell if we are in a bull market. there There is no absolute way to determine when this market will occur.
In most periods, a bull market occurs After a great recession in the financial market. For example, it happens next bubble dot com It exploded in the early 2000s. As it happened after The global financial crisis 2008 And after COVID-19 pandemic for the year 2020.
You can tell whether a market is in a bull market or a bear market in different ways. The simpler it is Look at whether it’s stocks or commodities It rises or falls continuously in a given period. In technical periods, you should look at periods of higher highs and higher lows in the financial market.
There are other characteristics of a bull market. For example, the market Is characterized by higher liquidity As investors continue to buy assets. Moreover, it is usually characterized by Irrational exuberanceWhere stocks rise from all attributes. Also, bull markets occur when there are high valuation metrics.
When does a bull market start and how long does it take?
in most periods, A bull market begins in a period when stocks are not doing well. that happens After a big dipwhich is caused by a major market event.
As mentioned above, some of the most common bull markets occur after a major event. Some of the most significant events of the past few years have been the internet bubble, the global financial crisis, and the COVID-19 pandemic.
As described above, the bull market that occurred after the Covid-19 pandemic began in March 2020 and ended in January 2022. Sometimes, The bull market can last for a shorter periodAs we have seen in the first chart, the 2023 uptrend has been a bit short.
Bull market trading strategies
In most periods, market participants can take advantage of Just buy and hold financial assets during a bull market. You can do this by buying an index such as the Dow Jones and the S&P 500 and benefit as their prices go up.
Another trading strategy is where you buy the dip during a bull market. This is the situation in which you buy stocks anytime they fall during a bear market. When that happens, it usually leads to profits from then on Assets tend to rebound from their lowest point.
the The best way To buy dips during a bear market It is using a moving average. In this case, you can simply buy a stock when it retests the moving average. Other trend indicators that you can use in this situation are Bollinger Bands And Ichimoku Kenko Hyo. A good example of this is shown in the chart below.
Instead of using technical indicators, you can use trend lines that touch the lows of key levels. In most periods, these trend lines are usually seen as Good levels of support and buying opportunities.
summary
A bull market is an important period in the market. For most periods, it is It has more chances than in a bear market. In this article, we’ve looked at what a bull market is, how it works, and some of the best strategies to use when trading in such a period.
Useful external sources
- History of the bull market and bears [PDF] – Oidaho