Bull Market: Characteristic and Trading Principles

This article is devoted to understanding the exchange market: what it is, its features and how to use it for trading.

What is a bull market?

A bull market is a situation in financial markets when market prices are growing steadily and investors are very optimistic. The term is more commonly used for the stock market, but applies equally to bonds, real estate, currencies, commodities, and other areas of finance.

The term “bull market” describes a long period of time when most stocks are growing steadily and stock indexes confidently update their highs. In other words, there is a long-term uptrend in the market: new highs and lows are regularly set higher than the previous ones. Typically, bull markets last from several months to several years.

Throughout history, the global stock market has gone through several such periods. The longest started right after the 2008 US mortgage crisis and ended with the COVID-19 pandemic in 2019. During those years, the Nasdaq 100 stock index grew more than 800%, while some popular stocks rose more than 1,000%.

Bull market characteristics

Such a situation in financial markets often accompanies the cycle of global economic growth. This is the most promising time for investors as companies and businesses typically post stable earnings and the unemployment rate remains low. At such times, people are willing to spend and invest more, and the stock market profits increase.

The main characteristics of the bull market:

Sustainable asset price growth. In the context of the stock market, this means the growth of market indexes and stock prices. After a slight correction, stock prices and indices are trying to rise again and regularly update their highs.

Positive economic reports. Bull markets usually occur when the economy starts to grow after a crisis or is already strong. Interest rates are on the low side, GDP is growing, unemployment is down and companies are reporting rising profits.

Demand exceeds supply. When the economy is growing and the unemployment rate is low, investors look to buy and hold stocks in the hope that their prices will rise. An emerging market has more buyers looking to buy shares than sellers.

Optimistic market participants. When the stock market and economic indices rise, investors become more confident. They are more optimistic and even interpret bad news as temporary moves that can offer better prices to buy on corrections.

How to trade in the bull market

When most asset prices are rising, it is easier to make a profit than when the market is uncertain. So, here are some popular strategies for trading in a bull market.

Buy and save

This is the most popular way to invest in a bull market: investors buy an asset and hold it for as long as possible until there are signs that the uptrend is ending. These strategies allow positions to be held for very long periods of time – from several months to years. The longer the market grows, the more profit investors can get from their assets.

If an investor buys a stock, he or she also benefits from price growth and dividends from the issuer. Therefore, securities with high dividend payouts are most attractive to buyers.

This strategy also uses popular stock indexes: they help diversify investments because they consist of many stocks from different companies.