There are many terms that are used on both websites and in the media when discussing investing. New investors need to know the lingo in order to fully digest what an analyst is saying, so today I’m going to go over just what is a bull market?
Definition of Bull Market
Rather than put this in my own choice words, I’m going to give you the investopedia version:
A bull market is the condition of a financial market in which prices are rising or are expected to rise.
You’ll mostly hear this term used to describe the stock market but it can be used universally for any traded item, such as cryptocurrencies, property & real estate, and commodities such as gold investing. During normal trading sessions, the prices of securities tend to go up and down very rapidly, so the term bull market is used when there are long periods of time where the market rallies and sustains gains.
Bull markets last anywhere from a few months to many years.
Understanding Bull Markets
Created by investor confidence in buying and an optimistic mindset about the market continuing to grow for a period of time, it’s very difficult to forecast when market conditions will result in a bull market. There isn’t an official characteristic that defines a bull market, but many people will point to a scenario in which stock prices go up by 20%, which is normally led by a drop of 20% prior, and a second 20% decline. A bull market is typically called a bull market after it happens, such as the years 2003 – 2007. Of course, this was followed by a very large bear market, when the financial crisis of 2008 happened and changed many banking policies as they pertained to getting home loans and mortgages.
What to Look for in a Bull Market
When the economy is getting stronger or already holding a solid pattern, this is when you can see a bull market develop. When there is a strong GDP and low unemployment, corporations thrive and subsequently report solid earnings. When this happens, investors gain confidence and start to put their money into the market.
Bull vs. Bear Markets
On the contrary to a bull market, we have a bear market. This is when prices fall and pessimism hovers around the market. The terms “bull” and “bear” are said to suggest that these are the ways that each animal attacks their opponents. When a bull gets ready to attack, he puts his horns up in the air. The bear, on the other hand, swipes it’s paw down toward the ground. These metaphors are used to describe the market movements and have been around for many years.
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Bull Market Trading Tips
There are a few ways you can take advantage of bull markets, namely:
#1: Buy and Hold
If you expect securities to rise, buying and holding is one of the most basic and utilized strategies there is.
#2: Increased Buy and Hold
Consider this an aggressive move to increase your holdings in a position. Some investors tend to purchase a fixed quantity on a monthly basis, or even on a certain increase of a stock price.
#3: Full Swing Trading
Perhaps the most active trading tactic is full swing trading. It involves making trades that can happen over a few days or several months. Short positions can even be used in full swing trading.
#4: Retracement Additions
This occurs when a stock price moves down in a bull market. The sentiment here is that the price will move back up, so adding to the position on a day of being down allows the investor to add at a cheaper price.
Best Bull Markets of All Time
Perhaps the most memorable bull market started in 1982 and went all the way until the dotcom bust in 2000. (This same dotcom bust that led me to have my consulting career delayed 18 months, which was the best thing that ever happened to me.) This bull market saw the Dow Jones Industrial Average (DJIA) bring back investors a solid 16.8% in returns. Meanwhile, the NASDAQ, a heavily influenced by tech exchange, saw it’s value jump up 5 times it’s worth from 1995 – 2000 alone! The NASDAQ went from 1,000 to more than 5,000 in that span!
In 2009, after the economic meltdown of 2008, we saw the start of a ten year bull market run and some analysts pinpoint the date March 9, 2009, as the day that led to the rally.