As an investor, you might have come across certain statements from your fellow investors like;
The market is Bullish.
Or,
The market is Bearish.
How knowing what these mean and what actions to take when a market is bullish or bearish can help you?
Knowing the market type and its features can help you make an investment strategy accordingly.
Knowing the market will surely help you to earn better returns.
In the case of a bullish market, the market is optimistic, and the prices are increasing for most of the shares in the market.
Let us get into the basics of a bull market meaning and how you could earn the best out of a bull market.
A Bull market is a condition of a financial market where the prices are rising or the market shows the expectations of price rise.
The bull market term can be applied to anything that is traded in a financial market, like Bonds, real estate, currencies, and commodities.
Prices of securities cannot only rise during trading; they may rise or even fall daily.
Thus, the term bull market is used essentially for an extended period in which most of the securities’ prices are rising.
The bull market may last for months or even years.
A bull market is seen generally because of optimism, investors’ confidence in the market growth, and the belief that good results should continue for an extended period.
Due to the constant risk of fluctuations, it is really difficult for an investor to predict consistency in following a certain trend in the market.
There is no specific benchmark to identify a bull market, but the most commonly used definition of a bull market states the situation when the prices rise by 20%, after a drop of 20%, or before the second drop of 20%.
A bull market is very difficult to predict. Thus, an investor can only identify what has happened.
There are several features of Bull Market that make it worth understanding. These features can also be termed as causes of bull markets. Some of the features are as follows:
When the investors see that the market is optimistic and the prices are increasing continuously, they tend to make bold investment decisions.
This decision comes when the investors are confident in the market which in turn helps the market to grow.
A bull market tends to be seen in a strong economy or an economy that is strengthening.
Bull markets generally happen when there is an increase in the gross domestic product (GDP) and a decrease in the unemployment rate and corporate profits.
We can see an increase in the number of Initial Public Offerings (IPO) during a bull market.
It is quite obvious as, during the bull market, people believe that the stock market is the easy money-making way, and this helps the IPO issuers to sell their shares to eager investors.
Demand for shares by the investors is high in a bull market while the supply is less.
Demand is high due to the eagerness of an investor to invest in a market that is growing and prices are showing an increasing trend.
Supply will be less because investors will tend to hold the stocks.
The bull market provides high capital gains to traders and that makes people suffer from a Fear of Missing Out (FOMO) on the stock market.
They put money in the stock market with a wish to earn easy money with the market flow.
This, in turn, increases the number of retail traders in the market.
Investors who want to earn maximum advantage from a bull market should invest when the bull markets start.
Investors should buy when the prices have just begun to rise and sell when the bull is at the peak, where the prices are the highest.
It is quite difficult to determine when the bottom and peak phase of a bull market occurs.
An investor may use the following investment strategies in a bull market to earn good returns.
However, as it is difficult to assess the market there, these strategies involve at least some amount of risk.
Nonetheless, there are some bull market trends that arise through investor activities at the time of bull runs in the market.
Momentum and trend following strategies:
The Similarities:
In both approaches, investing is disciplined, focusing on price, trends, and when to stop. Both buy on the rise and sell on the rise. Both cut their losses. And that’s where the similarities end.
Momentum strategy in Bull market:
This is a significant rule that small investors should follow in a bull market. A bull market is not one-way. But as long as the bull market is intact, momentum is rising. You should always stay on the same side of momentum. So you can buy high and wait for the stock to go up, or you can buy dips. Either way, you should never try to outsmart the market. In a bull market, the very idea of selling against momentum can put you in big losses. Momentum is the message the market is trying to convey. If you feel differently, then the market knows something that you don’t. Just listen to what the market is trying to tell you!
Following the trend:
One thing we should be clear from the outset is: trend trading is a conservative approach to speculation. Trend-following trading strategies are therefore simple, less risky and attractive to all types of traders, especially those who need confirmation before entering the market.
Conservative traders look for signs that a trend is in place before committing any money to a position.
Aggressive traders, on the other hand, always like to play with the option of picking a market top or bottom. Therefore, the trend following strategies presented in this article appeal to more conservative traders. As they can usually complement other strategies, the ideas presented are applicable to traders of all personalities and strategies.
A bull market can be fruitful for investors because the market tends to grow like the horns of a bull. Investors should keep investing in the market and make investment decisions based on the bull market’s trend.
Buy and hold is one of the most basic strategies in investing, it is a process of buying a security and holding it to sell on a future date.
The prima facie requirement for this strategy is confidence from the investor’s side in the share of the company.
The optimism and the confidence that comes with a bull market helped boost the buy-and-hold strategy.
This strategy is a variation of the Buy and Hold strategy; it also involves some additional risk.
In this strategy, the investor will continue to add to their holdings by buying till there is an increase in the price of a particular security.
A common method is to buy a fixed quantity of additional shares for every increase in the share price of a predetermined amount.
Full Swing Trading as the name suggests is the most aggressive strategy an investor can follow in a bull market.
In a full swing strategy investors try to squeeze out as much gain as they can by rapidly buying and selling the shares in the large bull market.
Retracement is a small period in a bull market where the securities’ prices fall.
Even in a bull market, it is likely that the stock prices will only increase.
There are probably shorter periods where the market prices see a dip in the market even when the general bull trend continues.
Some investors keep looking for such retracement and invest in the bull market during these periods.
The main aim behind this strategy is to enter the bull market at the time of a small deep and earn out of them, assuming that the bull trend will continue.
Before understanding what makes the prices rise in a Bull market, let’s understand the concept of liquidity in the stock market; liquidity is an important and sometimes underestimated factor. It indicates how much investor interest a particular stock attracts.
Trading volume is not only an indicator of liquidity but is also a function of corporate communication (that is, the degree to which a company receives the attention of the investing community).
Large-cap stocks have high liquidity—they are well-watched and heavily traded. Many small-cap stocks suffer from a near-permanent “liquidity discount” because they’re simply not on investors’ radar screens.
When the investors tend to invest more in the stock market, it may result in an increase in the market liquidity as the stocks can be now converted into cash easily. The highly liquid market may lead to a bull market. As a result of the demand-supply concept, the high demand for stocks in the market tends to increase their prices.
The bull market may exist side by side with a strong, robust, and growing economy.
Stock price reflects the future expectations of profit and the ability of the company to generate positive cash flows.
A strong production economy, low unemployment rates, and a rising Gross Domestic Product (GDP) suggest a growing profit and continuous growth.
All these are reflected in the rising stock prices.
The terms Bull (for upward trend) and Bear (for downward trend) are thought by some to derive from the way each animal attacks its opponents.
That is, a bear swipes down while a Bull attacks from its high-standing horns.
These actions are used metaphorically to relate to the movement of the market.
If the trend is upward, it is a bull market, and if the trend is downward; it is a bear market.
Though many people have sayings about why these trends are bull and bear, this was one of them.
India has seen several bull markets from the 80s to recent decade. Listed below in chronological order are the periods of the Bull Market in India with a quick gist of each of them.
Hence, the periods in which India saw Bull runs are as follows:
India saw its first bull market in 1985-86.
This bull began in the year 1985 after Mr. Rajiv Gandhi became the youngest Prime Minister of India after the unfortunate death of his mother and the former Prime Minister of India, Indira Gandhi.
The sudden death of Indira Gandhi Shook the whole of India.
This incident resulted in a huge victory for the Indian National Congress. Indian Politics entered a new age.
The market was filled with optimism under the charismatic finance minister V.P. Singh. V.P Singh laid out a reform for long-term fiscal policies and rationalisation of excise duty.
Further, subsidies were given by the government of India to corporate companies to increase Industrial production which triggered growth in the economy and the domestic products.
As a result, the market experienced new highs. Rajiv Gandhi was interested in bringing a revolution in Information technology.
With these reforms, the market experienced a high of nearly three years. The market surged from 230 to 670 levels within a period of fewer than 2 years.
The Bofors scam resulted in the end of the bull market in the year 1987 which brought the market back to correction.
India did not wait much longer to see its second bull market.
The 1991-92 Bull market is famously known as the Harshad Mehta bull market.
This bull run started in the year 1991 which was due to the formation of a new government.
The Indian National Congress. PV Narsimha Rao became the new Prime minister of India, and Dr. Manmohan Singh became the finance minister.
The budget year 1991 proved to be path-breaking for the Indian Economy, and thus the stock market saw a boost of around 300% in less than 18 months.
The rally was fueled by Harshad Mehta; The Big Bull of the Indian stock market.
Harshad Mehta, in his scam, used the illegal money to make investments in the stock market by exploiting the loopholes in the Banking system.
Harshad Mehta made such a reputation in the market that the market was moving at his will and managed to hike the demand for certain shares like Sterlite, Videocon, and ACC (Associated Cement Company).
This made ACC see a huge jump from Rs. 200 to Rs. 9000 within 3 months. The Stock markets were madly overvalued.
In the end, Harshad Mehta sold the Majority of his shares for huge profits, which crashed the market.
By the year 1994, the market came down to almost 30% of the 1992 market.
The advent of the internet in 1998 marked the next bullfight in India.
While the US was in the middle of the dot com bubble, Asia was under the threat of Y2K (a disruption that was expected to hit Computer Systems in 2000).
However, India was not intimidated by that and took the opportunity to enter global software Markets. All to provide debugging services.
So, it started the integration of IT shares in the stock market.
Within 2 years, the BSE IT index gained more than 1000%.
More than 30% of SENSEX is now built by IT companies; this led to a major adjustment of IT stocks, and thus the market began to adjust in 2000.
During this period (1998-2000), SENSEX increased from 2,700 points to 6000 points.
The next Bull Cycle began in the summer of 2003 introduced by Infrastructure and Liquidity global.
After the explosion of the dot-com bubble in the US and the Y2K incident in Asia, global markets, including India, are set to become more significant.
Investor sentiment is now in full swing. An important feature of this Bull run, which made it different from previous bullfighting, was that it was not directly in India.
Many other countries like China and Brazil have also climbed very high this time.
The US, on the other hand, has seen growth in the housing industry, which has led to a slowdown in debt.
The US banking sector was finally exposed in 2008 with the collapse of Lehman Brothers.
As a result, Wall Street collapsed, and its effects spread across the globe.
As a result, Indian markets declined several times in 2008. From the top 20,000 levels, SENSEX dropped to 8,000.
Therefore, noted the end of some Bull Run prices and bulls.
The 2013-18 bull is considered to be the tallest bull in Indian history. However, it was moving slowly again.
At this time, SENSEX was at 18,000, the lowest, in 2013, and was able to hit 38,000 in August 2018, which is growing almost 2 times in 6 years.
The bull race began in 2013 with Modi’s growth in Indian politics. It was a time when dissent from power was rampant and the nation was outraged by the appearance of fraud and corruption.
India was desperately looking for a new Leader. In 2014, Modi led his party, the BJP, won, and the NDA formed a government at the centre.
Before National Politics, Modi had been Gujarat’s Prime Minister three times in a row.
The factories in Gujarat developed under his rule so he was expected to produce similar results at the Center. With programs like Make in India and Digital India, BJP did not disappoint the Market.
In 2017, Mid-Cap and Small-Cap companies performed at a very high level. The rally was expected to continue in 2018, but the NBFC crisis of September 2018 rocked the sentiments of investors.
Although the markets did not fall sharply, they could not grow at the same pace again.
In 2019, the market was once again shaken by global tensions (trade war between the US and China) and volatile price volatility.
With the highly criticised 2019 budget in line with the GDP level falling below 5%, the bullfight is now believed to be over.
Inflation, high-interest rates, and a recession may all contribute to the demise of the bull market.
But time is everything.
The stock market anticipates a recession, usually reaching a peak six to nine months before the start of one.
To make matters worse, stocks are sometimes anticipating an impending recession.
Also, stocks tend to do well in the early days of high levels and inflation; they show economic stability, after all.
Ultimately, however, high prices stagnate growth as inflation undermines the value of investment returns.
You may have heard the terms bear market and bull market used as a metaphor for what is happening in the stock market.
In short, the bear market is where prices fall and the bull market is where prices go up. It is easy to translate both words as they contradict each other.
During the bear market, which is a major decline in stock prices, you will often see low investor confidence and the perception that the market is volatile.
In the bull market, which is a steady rise in stock prices, you will probably see high investors’ confidence and the perception that there is a strong economic climate.
However, the bear market clearly describes any stock index or stock that is declining 20% or more from the recent highs.
On the other hand, the bull market tends to rise 20% from the recent decline of the bear market and reach a benchmark record high.
Investors in the bear market are tempted to sell their investments during this time to eliminate the risk of losing more money.
On the other hand, investors in the bull market may sell part of their stock for a decent gain or hold on to the hope that prices will rise even more in the future.
Regardless, although it is easy to get caught up in the market, experts often suggest leaving your investments alone for a long time.
To avoid reacting to market fluctuations, stop looking at your portfolio regularly.
It is a natural feeling to want to respond quickly to a loss of value, so skirt around that loose reaction by looking at your investment as little as possible.
Overall, The bull market may provide profitable opportunities to make quick money for traders, but, on the contrary, they are less popular with value investors (who will last longer).
Therefore, Mr. Warren Buffet correctly stated, “Fear when others are greedy and be selfish when others are afraid.”
An investor needs to be careful while investing in the bull market because when the bull run ends, the market gets corrected.
No, the bull market term can be applied to anything that is traded in a financial market, like Bonds, real estate, currencies, and commodities.
There is no specific benchmark to identify a bull market, but the most commonly used definition of a bull market states the situation when the prices rise by 20%, after a drop of 20%, or before the second drop of 20%.
In the bull market, which is a steady rise in stock prices, you will probably see high investors' confidence and the perception that there is a robust economic climate.
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