We often come across the term “Bull Market” associated with the prevailing stock market cycle and investor sentiments. Just like investors are eyeing bull market for gold in 2019 owing to miscellaneous global macroeconomic factors.
A bull market is a condition in which the stock market keeps rising for an extended period. The term is usually used regarding the stock market, but it can also be applied to anything that can be traded by investors like real estate, currencies, bonds, and commodities.
The bull market is usually for broader times, i.e., a rally for months or even it can extend to years.
A Bull market shows investor’s confidence, and expectations that company will post strong results and this trend should continue for an extended period, or in the broader term the country’s macroeconomics is stable, and employment levels are high.
It is not clear how the term “Bull” originated as per a common explanation in the market, the term bull market is named after the characteristics of the animal. It refers the way bulls attack their victims.
Characteristics of a Bull Market: It is a known fact that the upward direction of share prices for a longer period marks a bull market condition, but still there are some characteristics that investors should be aware of:
- Supply and Demand: In a bull market, there is a strong demand and weak supply for stocks. In simple terms, most of the investors are going to buy shares while only a few of them are selling. Due to these transactions, share prices will soar as investors compete to acquire available shares.
- Investors Psychology: Psychology plays a significant role in share prices movement because it impacts the market’s behaviour. The behaviour of the market is influenced and determined by how individuals recognize that behaviour. Stock market movement and investor psychology are affected by each other.
- Economic Activity: In the stock market, company stocks listed on the exchanges are the great contributor to the economy. The equity market and macro-economic conditions of a nation are strongly positively correlated. A bull market trend is associated with a stronger economy as most of the businesses are recording huge profits and the reason for that is consumers are spending and are willing to spend it more, which in turn drives and strengthens the economy.
What to do in Bull Market: An investor can take advantage of the bull market by buying the stock while they hit bottom and then sell the shares when they have reached their peak (although it is impossible to determine when the bottom and peak will take place but itis based merely on investors assumptions). During the bull market trend, any losses made by the investor should be temporary.
An investor can actively invest in more equity with a higher probability of making a considerable profit.
There are some strategies investors can apply during bull markets periods. These strategies include some degree of risk as well.
- Buy and Hold: It is one of the most common strategies which are used by the investor. In these investors buys particular stocks and holds onto it, potentially to sell it at a later date. It shows the investor’s confidence.
- Full Swing Trading: This strategy is one of the most belligerent ways of attempting to capitalize on a bull market. In this investors have to take very active roles, using short-selling and other techniques to squeeze out maximum profits as shifts occur within the context of a broader bull market.
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