If you have ever participated in the trading and investing world, you should have heard the terms “bull market” and “bear market” many times. The financial industry usually uses these terms to describe market conditions.
What is a bull market?
A bull market is usually used to refer to a market that is rising. The term applies to various securities, including stocks, bonds, commodities, currencies, and almost any securities.
Since the price of securities constantly fluctuates during the transaction, the term “bull market” is usually used to describe the long period when the price of most securities rises. There is no exact numerical measure, but it usually refers to a market where prices have increased by 20% or more in two months or more.
According to the historical research of First Trust Advisors, the bull market lasts for about 6.6 years on average, with a cumulative return of 334%.
However, it is almost impossible to predict when market trends will reverse. Part of the difficulty is that speculation and psychological influence can often play a key role in shaping the market’s future.
How to spot when the market enters a bull market?
When the demand is high, it usually triggers a bull market. When prices start to rise, investors hope to buy a share of the market. They believe that the upward trend will continue for a long time. Due to the high level of investor confidence, more and more people have entered the market.
As demand supports higher valuations, higher prices are being pursued. This phenomenon has a domino effect, leading to a psychological problem called herd behavior, leading to more funds being invested in the market.
Bull markets usually occur when the economy is strong, and employment levels are high.
In short, the definition of a bull market may focus on the strong upward trajectory of price movements, but this tendency is also related to the following factors:
- A series of higher highs and lower lows, eventually reaching a climax
- Short-term market adjustment (or callback) after consecutive highs
- Supply exceeds demand
- Strong economic conditions
- Psychology of traders and investors with evident bullish sentiment
Market entering bull position could turn out very beneficial for the traders if they follow the right trading strategies.
In this article, we will present you with some key details and trading strategies for the bullish market to make the most in trading.
How to trade in the Bull Market?
Thus, as we discussed, there will be a bull market when the price of securities rises faster than the overall average speed. The bull market is accompanied by periods of economic growth and investor optimism. Now, let’s discuss some useful tools and strategies for successful bull market trading.
A long position is simply the purchase of stocks or any other securities, expecting that their prices will rise. The overall goal is to buy the stock at a low price and sell it at a higher price than you pay. The difference represents your profit.
A call option is the right to buy a stock at a specific price (strike price) before a specified date (expiry date). As the cost of the underlying stock rises, the value of the call option rises.
Suppose the stock price rises above the exercise price of the option. In that case, the option buyer can exercise the right to buy the stock at a lower exercise price and then sell it at a higher price in the open market, thereby generating profits. Assuming that the stock is higher than the strike price, the option buyer can also sell call options on the open market for profit.
Most ETFs follow a specific market average, such as the Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 Index (S&P 500), and trade-like stocks. Generally speaking, transaction costs and operating expenses are low, and the minimum investment is not required.
ETFs, seek to replicate the changes in the indices they are concerned about and reduce fees. For example, if the S&P 500 index rises by 10%, ETFs based on that index will rise by roughly the same amount.
There are many ways to profit in bull markets. The key to success is to make full use of the essential tools.
Long positions in stocks, ETFs, and call options are suitable for bull markets. In addition, it is essential to use indicators to discover when a bull market starts or ends.
Still, these mentioned tools can’t always guarantee your profit. The market’s 100% accurate prediction is almost impossible. Thus, measure your risks first, get familiar with the trading characteristics and then enter the world’s leading financial industry.