In simple terms, a Bull Market is a financial market in which the prices of stocks are expected to increase or are rising currently. While a bear market is a market in which the prices are expected to fall due to a slowdown or recession in the economy. When prices rise to a full position it becomes profitable, whereas when prices fall investors start curing losses. The bull market is a leading indicator of economic expansion and can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
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Consequently, a general perception of the stock market bull may be described as a prevalent peak (for at least two months) with a substantial rise in stock prices of at least 20% or more. The bull market tends to begin roughly at the end of a bear market, so investors should prepare themselves by having a wish list of stocks handy. Investors can raise cash by selling investments like fixed income securities and gold to take advantage of the high returns associated with the bull market. Next, an investor should have plenty of cash deposited in his/her stock brokerage account to quickly access stocks once the bull takes over. Individuals should watch out for the bear market carefully because the bull market starts when the economic landscape appears darkest. Finally, investors should not wait till the recession is over or they would end up missing a bigger pie of the potential gains.
Characteristics of a Bull Market:
In this market, we can see that there are a strong demand and weak supply for market securities. We can see that many investors want to buy but a few want to sell. The stock market and the economy are strongly associated because the businesses whose stocks are trading on the exchanges are participants of the larger economy. This scenario usually takes place when the economy is strengthening or when it is already strong. In addition, the unemployment rates decline and minimum salaries go up as the employers battle for labor.
Strategies to use during a Bull Market:
Make sure you buy and hold your securities for a long period of time during the bull market. Few investors wait for the retracement period which means that the prices would go down than normal and investors would purchase securities taking advantage. An aggressive way to capitalize during this type of market is to take part in full swing trading by using short-selling and other techniques to attempt to squeeze out maximum gains. Bull markets are an ideal timeframe for newcomers to start trading in the equity market since the risks of incurring major losses are small. Many businesses with an established base can make considerable gains over this period, guaranteeing a return of 15-20 percent on the key investment value.
Types of a bull market
- Stock: In a healthy economy, all the major stock market indices rise making higher highs and higher lows. The main causes are Top-line revenue (TLR), profit, and P/E ratio.
- Gold: The price of gold keeps increasing but when the price reaches the all-time high it signifies the end of a bull market.
- Bond: Since the mid-1980s bonds have been bullish, which means that the investors haven’t lost their money because the rates of return were always positive.
- Secular: It means a long-term, overarching trend that lasts 5 years to 25 years. In this type of market, smaller bear markets are often observed; which basically means that the market experiences a certain drop and then resumes its upward swing.
From 2000 to 2009, the market struggled to establish footing while delivering average annual returns of -6.2%. However, during 2009 we saw the start of a ten-year bull market run. Analysts believe that due to the upswing in technological stocks the last bull market started on March 9, 2009.
The type of market will have a large influence on your investments, and decisions should be taken only after thorough understanding. With higher prolixity of faking returns during a bull market, an investor can typically actively and confidently invest in more equity.
Author: Mahek Medh
About the Author: Currently, I am in my second year and over the period of time I have realized that I enjoy learning about numbers and money, and I find topics of Finance very interesting, thus this is the domain and space where I wish to etch my long term career.