We have heard many times the word bull market. It became very useful in the second half of 2020 and also in 2019. However, not everyone knows what a bull market is or how it works. The first thing we need to take into consideration is that we are talking about trends in the financial markets.
Nevertheless, the term bull trend can be applied to other aspects and industries. For example, if a football team is experiencing an extremely positive season, it is possible to say they are in a bull period. This article will be about the bull market definition, how it works and why it is an important thing to know.
Disclaimer: the information shared by AltSignals and its writers should not be considered financial advice. This is for educational purposes only. We are not responsible for any investment decision you make after reading this post. Never invest more than what you are able to lose. Always contact your professional. financial advisor.
A bull market is a term given to a very positive trend in financial markets. When the price of an asset moves higher over a long period of time, then we could say this asset is experiencing a bull market.
Although it is not possible to define a percentage price increase or period of time that would be considered a bull trend, there are some characteristics that we should analyse and take into consideration.
Bull markets are very positive for traders because without a lot of effort they are able to register gains in the mid-term. For example, they do not need to trade constantly as in a bear market but they can simply hold the stock or the asset they like and wait for its price to move higher.
During bull markets, the sentiment is also very positive. Investors, companies and economic actors are usually positive about the future of the economy and other assets. Despite bull markets tend to push most assets higher, there are some stocks that would remain stagnant or even fall.
There are several characteristics of bull markets that we should look for to understand if we are in a bull trend or not. Some of the things we should look for include the following:
The first thing we need to take into consideration is related to the trend. During bull runs, we will see that the price of an asset would follow a pattern in which it will register higher highs and higher lows.
That means that the asset would be following an upward trend where newer corrections do not surpass past corrections. Let’s use a clear example. Stock A moves from 1 to 10 and then it retraces to 8 (20% correction). As we are in a bull market, the trend will continue from 8 to 16 and then a retracement to 13.
As you can see, the second retracement is similar in magnitude to the first one but it is not large enough to break the upward trend. If the second retracement would have pushed the price of asset A below 8, then this could be a red flag for the bull trend.
Understanding where to buy and sell during a bull market is definitely important.
Now that we know most of the characteristics of bull markets, we need to know how to trade bull markets. One of the first things we need to know is how to determine accumulation ranges. These are areas where the market oscillates for some time before another move higher.
If you were not fast enough the buy the asset before the bull run started, you can always enter during pullbacks. This is a great opportunity for investors to enter the market even if they were not early buyers. Each of the waves in a bull market brings new investors while others leave.
Furthermore, you should always have a price target that would help you take profits. Rather than waiting for an unknown price to be hit, you should know when you want to sell. One of the best things you can do is to place a sell-limit order that would be filed as soon as the market reaches the level you were waiting for. This would also help you avoid FOMO. Controlling your emotions is certainly important to succeed in the financial markets.
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