WHAT IS A BULL MARKET?
A bull market refers to the state of financial market in which almost all the stocks are rising or are expected to rise in near future. “Bull market” is the term mainly associated with stock market, but it can also be applied to all the securities that are traded, for example bonds, real estate, currencies and commodities. As prices of securities rise and fall continuously during trading, therefore the term “bull market” is used for the period during which the prices rise. They tend to last for few months or years.
During bull markets the investors are optimistic and expect strong results to continue for an extended period of time. Owing to this optimism they turn into net buyers and buy in good quantities. This speculation plays a very significant role in the bull movement.
There is no specific or even to all parameter to differentiate a bull market. However, the most commonly accepted definition is “Bull market is a situation in which the stock price rises by around 20% after a small fall and this continues to happen before a major decline by 20%”. Since, it is very difficult to predict a bull market. Therefore, one recognises the phenomenon during its happening or after it has happened. The recent most example of a bull market is the one which started in 2003 and lasted till 2007, before the crisis of 2008.
CHARACTERISTICS OF BULL MARKET:
Bull markets take place in optimistic environment, i.e. everything happening around is good and better is expected in near future. Some important characteristics of bull market are:
- They are aligned with strong gross domestic product (GDP), drop in unemployment and rise in corporate profits.
- The investors are optimistic regarding coming future. Buying quantities of stocks are decisively larger than the selling quantities.
- Also there is an increase in IPO activity during this time, owing to the optimistic outlook of the investors.
- There is a great gap between supply and demand during this phase. Everyone wants to buy, but very few want to sell.
TAKING ADVANTAGE OF BULL MARKET:
A prolific bull market will be futile for an investor if he/she does not deploy the right strategies to select good stocks for investment either by fundamental analysis or technical analysis. To make the most out of a bull market, an investor needs to begin early and sell near the peak. Here are some strategies which might be helpful for you.
- Buy and Hold:
This is one of the most basic strategies deployed by the investors. In this, a particular scrip is bought and is held for a longer time, owing to its potential to scale up. Belief of the investor on a particular scrip is the key in this strategy. The optimism that comes in a bull market gives confidence to the investors to buy.
- Increased Buy and Hold:
Increased buy and hold is a modified version of the previous strategy and also involves additional risk. The concept behind this strategy is that the investor will keep on buying a fixed amount of stock after every specific rise, as long as the price keeps on increasing. And when the investor will get the signals of end of Bull Run, then he/she will start selling the stock.
- Swing Trading:
This strategy if used correctly can be the most profitable among all. In this strategy an investor needs to make use of all the opportunities which they can identify. For example, irrespective of the overall market movement if an opportunity to short sell is present, he/she could go for it. And close your positions once the signs of reversal are observed.
- Add during falls:
Irrespective of the market type, its movement has never been unidirectional. It has slightly raised in bear markets and has fallen during the bull directions. Owing to these falls investors can add selected stocks and sell them when they rise.
BULL MARKET Vs BEAR MARKET:
The opposite of bull market is bear market. Bear market is the phase in which the markets fall by at least 20% in a very short span of time. Optimistic investors become the pessimistic ones during bear market. The terms have been assigned on the nature of movement of the market. During its attack the bull pushes its horn up and the bears swing its paws downward. These actions are comparable to the movement of market. Hence, if the trend is up then it is bull market and if the trend is down then it is bear market.
The economic cycle is divided into four phases: expansion, peak, contraction and trough. These four phases of economic cycle also coincide with the type of market. The beginning of bull market generally marks the economic expansion. This is because the public sentiment regarding the future economy guides the stock prices. Also the market frequently hikes even before wider economic measures, such as GDP growth increases. Similarly, the bear markets originate before economic contractions.
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