Bull Markets

Understanding Bull Markets

Surely you have heard the terms “Bull” or “Bear”, but you have wondered for sure what do these terms represent. They are the metaphorical way of calling bull markets (Bull) and bear markets (Bear). In this article, we are going to focus on bull markets, their definition, and the different ways to invest in these markets.  

What are bull markets?

Financial markets can be divided according to the trend of the prices of the assets that they comprise. Bullish, bearish or static.

A bull market is one in which there is evidence of a prolonged rise in the prices of the assets that comprise it. The name “bull” refers to the movement of the head that a bull makes when charging, because the horns go from top to bottom. This type of market can last for months or even years.  

How to identify a bull market?

The main characteristic of bull markets is the optimism and confidence of investors and the general expectation that it will continue for a long period of time.  

In itself, there is no measure to identify the start of a bull market, however, experts agree that a market is bullish when the price of most of the assets that make it up rises by 20%, preceded by a decrease of the same 20%.

Characteristics of a bull market:

Bull markets typically occur when the economy is strengthening or already strong, leading to optimism and increased supply and demand for the products that make up the market. Other characteristics are found when:

  • They are a consequence of the strength of the gross domestic product (GDP) and the fall in unemployment and often coincide with an increase in corporate profits.
  • Global asset demand will be positive, as will the general tone of the market.
  • There will be a general increase in the number of IPOs during bull markets.
  • The volatility of the assets is reduced considerably, until reaching a point of constant growth.

How long does a bull market last?

There is no official certainty of how long a bull market lasts. Throughout economic history, there have been many bull markets with different temporalities, some longer than others. Thus, we can find bull markets that last just one year and others that exceed 10 years.

We can learn a lot about the stock market by learning its history, but we can never accurately predict what is going to happen.

Bull Market Example

The most prolific bull market in modern US history began at the end of the stagflation era in 1982 and ended with the collapse of the dot-com bubble in 2000. During this secular bull market – a term referring to a bull market multi-year-, the Dow Jones Industrial Average (DJIA) obtained an average annual return of 16.8%. The NASDAQ, a stock market with a strong technological component, quintupled its value between 1995 and 2000, from 1,000 to more than 5,000 units. A prolonged bear market followed the bull from 1982 to 2000. From 2000 to 2009, the market struggled to consolidate and posted an average annual return of -6.2%. However, in 2009 a ten-year bull market began. Analysts believe that the last bull market began on March 9, 2009, and was mainly led by the rise in technology stocks.

How to profit from a bull market?

The trading sense of bull markets is to buy, hold, and sell when the price reaches a certain level. The most common assets are shares, buy, retain dividend receiver, and sell in the long term (5,10,20 years) ensuring a moderate return but significantly reducing investment risk.

In online trading, as it is a purely short-term investment, it is not recommended to hold open positions for a long time, in this case, profits are capitalized in days, minutes, or hours, however, trend analysis is essential to guide operations and determine the investment horizon in each open position. In addition, generally long and short positions are always opened, that is, in bullish and bearish markets, as a form of hedging and risk management. This is because depending on the correlation between markets, when some rise inevitably others fall, in this way, the investor can win on one of the two sides of the coin.

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