What Is a Bull Market and How to Adjust for One?

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a simple red bull market graph and the words bull market

Understanding bull markets is key to the success of any investor. This article is going to explain what is a bull market and offer some tips on how to identify one. It will also cover several investment strategies that are used by investors to adjust security holding positions during these periods.

What Is a Bull Market?

A bull market is a term that describes a group of securities that are expected to rise or are already rising. It is most often used to describe stocks but is also applicable to virtually any tradeable security. The main characteristics associated with bull markets are a belief that positive results will continue, investor confidence, and optimism.

Understanding the Difference Between Bull and Bear Markets

This portion of our what is a bull market article is going to explain the difference between these two common terms. Bear markets are the opposite side of the coin compared to bull markets. Their main characteristics consist of negative consumer sentiment and general downward trends in investment pricing.

The best way to remember the way each term relates to market direction is to focus on how each animal attacks in real life. Bulls thrust upward with their horns when attacking and bears tend to swat downward with their claws. The effect of bull and bear markets is the same as the attack motion.

Bull and Bear Market Cycles

This section of our what is a bull market article is going to cover the cycles that are associated with these markets. Bull and bear markets tend to ebb and flow with bull markets averaging just over nine years and bear markets averaging a year and a half.

The largest bull market lasted just over 15 years and had an average return of over 900 percent. In the case of bear markets, the longest duration was just under three years with an average loss of 83 percent.

two statues of a bull and a bear symbolizing the financial concepts of bull market and bear market

How to Identify Bull Markets?

This section of our what is a bull market article is going to focus on the main ways to identify bull markets. Some of the primary market indicators used to identify bull markets include moving averages, advances and declines, volume, and momentum indicators.

1: Moving Averages

Moving averages are a type of technical analysis that aims to reduce fluctuations that occur as a result of temporary price increases and decreases. The most common moving average figure is called simple moving average, and the more advanced version is exponential moving average.

Simple moving average uses a smaller segment of dates and creates a trend based on pricing from that period. Exponential moving average places much greater emphasis on recent pricing details from current earning periods.

2: Advances and Declines

Advances and declines are the number of stocks that closed higher and the number of stocks that closed lower than the previous day’s close. These numbers are used by analysts to help determine the overall sentiment of the stock market. Bull stock markets have more advances than declines.

3: Volume

Volume is a measure of all the trades that were completed for a given period of time. These numbers have a direct impact on the overall effect of price increases and decreases on a given stock. The higher a volume is during price movement, the more important that movement is to the stock. Bull markets typically have a large amount of trading volume over extended periods.

4: Momentum Indicators

Momentum is basically a measurement of the speed of price changes that occur for a stock or commodity. It tends to have a much greater impact on rising markets that occur during bull periods than it does in falling markets. This figure is usually tied to the relative strength index to help measure the overall movement of stocks for a specific period.

Bull Market Investment Strategies

This section of our what is a bull market article is going to offer a few different strategies for investing in bull markets. Keep in mind that no strategy is foolproof and that all investments do come with risks.

1: Increase Your Risks Exposure

One of the most basic bull market investment strategies is to increase your risks exposure. There are certain markets that perform particularly well during bull markets. Some sectors to consider include energy, consumer goods, and commodities.

You can also invest in emerging markets like China, Brazil, and India. These areas tend to do very well when there are bull markets and can often net very good returns. Be sure to carefully monitor the stocks for any signs of downward momentum since they are prone to volatility.

2: Buy and Hold

This is one of the simplest strategies to try during bull markets. It consists of buying stocks and holding onto them for a later date.

The exact time you choose to sell will vary based on how early in the bull market you made your initial purchase. Pay careful attention to trend reports and look out for signs that the bull market is reversing. When it does, you sell your holdings for a net profit.

3: Retracement Additions

Investors using this strategy seek to benefit from temporary drops in investment pricing. During periods where stock prices temporarily fall, they purchase additional shares at a discounted rate. The goal of this strategy is to increase your holdings during periods where stock prices drop in hopes that they will continue their upward trend at a future date.

4: Full Swing Trading

This investment strategy is suitable for the most aggressive traders. This strategy involves buying and short-selling positions throughout the day in an attempt to profit from upward and downward swings in pricing.

It involves actively monitoring stock movements and typically utilizes advanced software to execute trades automatically. It requires a large amount of capital and often benefits from trading platforms that offer discounted volume trades.

Bottom Line

You should now have a sound understanding of what is a bull market. Use the tips outlined in this article to help identify when one is occurring. When you identify a bull market, consider the four investment strategies we covered to help you adjust your holdings as needed. Remember to always plan for the long-term to help reduce your overall financial risks.

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