The bull market is a market characterized by the rise in prices of goods and services. That is prices continue to go up over time until the start of a bear market or a market collection.
A bull market can be used in different markets such as the housing market, cryptocurrency market, currency markets, etc.
What causes bull markets?
The strength of the economy is the main cause of the bull market and its length. Investors and traders pump a lot of money into the market when they are not afraid of losing.
This optimism increases the demand for goods and services in a particular sector(s) of the market. Overly optimistic sentiments of investors about the economy pushes prices much higher to a level where investment principles are ignored.
In other words, some investors stop using fundamental or technical analysis when evaluating companies. They just invest. For example, sometimes stocks grow like 50% in a day without news to supporting that high growth.
What goes up always comes down. Prices of goods and services do not go up forever. At some point, investors realize that it is time to stop buying and start selling for profit.
This change in investors’ sentiments will increase the supply in the market. More supply will lower prices and many investors will rush to sell.
An oversupply of products will plummet the prices. As a result, there will be a market correction or a recession depending on how much prices plummet.
List of the longest bull markets
The market moves in cycles (ups and downs). For every huge rally, there is a correction that follows. At the same time, every recession is followed by a bull market.
Some bull markets last longer than others depending on economic conditions. In this section, we will illustrate some of the longest bull markets recorded in modern history.
Based on the Financial Industry Regulatory Authority (FINRA), the following are the longest bull markets since 1929.
- June 1949 to April 1956
- October 1974 to November 1980
- August 1982 to August 1987
- October 1987 to March 2000
- March 2009 to January 2018 (Source: Invesco)
How can you tell if you are in a bull market?
You can evaluate the current condition of the market based on economic performance. A shift in economic activities can tell you a lot about the market.
The following are tips you can use to know if you are in a bull market.
- Economic recovery: After the market crash, there will be a recovery. If you see that economic conditions are improving, it may be an indication of a bull market.
- Increase in manufacturing and retail data: Investors and traders recognize an extended growth from an increase in manufacturing and retail sales. retail companies make more sales when people are not afraid of spending. More spending increases orders from manufacturing companies. More demand creates more jobs and increases more disposable income for consumers. This cycle continues until the next recession or market correction.
- Growth of tech and cyclical stocks: Tech and cyclical stocks grow from an increase in revenues. This increase happens only when people buy their goods and services. For example, outdoor companies can double their revenues in the summer because of the high demand of outdoor products. The opposite can happen to these companies. If nobody is spending money on outdoor products in the summer, sales of these products will plummet. Lower sales suggest that customers are afraid of spending money due to the anticipation of an economic slowdown. For this reason, tech and cyclical companies can be used to predict the direction of the market.
- Interest rates: Low-interest rates attract more borrowers which in the end support every sector of the economy and creates more jobs. By paying attention to the movement of the interest rates, you can know whether you are in a bull market or a bear market.
- Low unemployment: Companies hire more people when they are doing well. Their performances and expansions depend on increased demand from retail sales. At the same time, retail companies increase their inventories only if people are buying their products. Everything comes back to the customer. If more people are getting hired, it will be an indication of available disposable income. This will translate into more spending and a strong economy.
- High disposable income: High disposable income comes from more jobs and bonuses created by a good economy.
- Increase in business profitability: When companies are making huge gains, know that the bulls have taken over.
How to invest in a bull market?
Since bull markets are a sign of extended growth, you can buy and hold stocks and other securities for a long time. By using this strategy, you will take advantage of the entire market rally.
As an investor, your job is to understand the market performance and be able to predict its future direction.
Understanding markets will give you a chance to buy stocks, bonds, ETFs, etc. at the bottom if possible and hold them for a long time.
The following are some of the strategies you can use to invest and trade during a bull market.
1. Take long positions
Bull markets imply an increase in prices over a period of time. This market condition gives investors a higher chance of profitabilities.
Since markets are expected to go up, you can invest a lot of money in the market and reap a huge profit.
Bull markets also reduce the chances of losing money in the market for investors with long positions.
2. Avoid taking long term short positions
Long term short positions are risky in bull markets. Shorting is a strategy that investors use when they expect securities’ prices to go down.
In response, they sell these securities at higher prices and buy them back later at lower prices.
Related article: Short position extended definition
This strategy will not work unless you are in a bear market. It would not make sense to take a short position in a market that is expected to rise.
Of course, there are those who speculate and try to maximize their profit by taking short positions before the bear market or market correction begins. These people may be right sometimes. However, it is difficult to time the market. For this reason, take a short position only after you have done your homework.
Do you want to succeed in the market? You must follow the market. If you are in an ascending market, take long positions, and avoid short positions.
On the other hand, if you are in a bear market, take short positions, and avoid long positions.
If you really want to short securities in a bull market, take short term short positions. You can always gain from stocks’ pullbacks within their trends.
Related article: Stock Trend/Market Trend Analysis
3. Use loss prevention methods
Whether you are in a bull market or a bear market, you should always use loss prevention methods. It is equally important to stay away from risky trading and investment strategies.
For example, you should avoid using market orders when buying or selling stocks and other tradable securities. Instead, use limit orders to buy and sell your stocks.
Furthermore, there are times when the stock you bought will not move in the trend you anticipated.
This will make your trade a losing trade. The amount you will lose will depend on your position size, how low your stock gets, and whether or not you have safety measures in place.
To protect yourself from this issue, you must always use stop-loss orders to kick you out of the market when the stock moves against you.
At the same time, it is always a good idea to use trailing stop orders on your winning trades. This order will protect your gains from sudden drops in the prices of securities you are trading.
In order words, if the market goes down, the order will sell the number of shares you specified. Hence, locking in profits for you.
