What is a Bull Market?

What is a Bull Market?
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A bull market occurs when the market appears to be in a long-term climb. The use of “bull” and “bear” to describe markets is said to come from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it’s a bull market. If the trend is down, it’s a bear market.

Bull markets tend to develop when the economy is strong, the unemployment rate is low and inflation is under control. They are backed by optimism, investor confidence and expectations that strong results will continue. Although the term “bull market” is most often used to refer to the stock market, it can be applied to anything that is traded such as bonds, currencies and commodities.

If you are thinking of investing in any assets, it is important to be aware of the factors that characterize bull markets. One example is when a company releases a good earnings’ report showing profits that exceed estimates or repeatedly beat market expectations, in which case, there will be an increased tendency to buy. This scenario is mostly seen in stock markets. In addition, the sentiment of investment can sometimes shift towards a particular financial asset. In times of economic uncertainty, gold is one such item. It is perceived as an item of value and there has always been a persistently increased demand for gold, hence there has been a bull market in gold for some time.

The perceived scarcity of an asset can also result in a bull market as can overall economic optimism, as with the property boom in the US several years ago which brought about a lot of consumer spending and general economic optimism. This boosted almost every market; stocks, commodities and bond markets and the general economic optimism during that period promoted bull markets. Last, but by no means least, there is of course the bandwagon effect. Whenever there is a bull market, there is generally an increase in investment activity which in turn drives up demand and increases bullish market activity.

Bull markets do not last forever, but while they are in progress, they make good opportunities for investors to make money. There are various tools that may be used for rising stock markets including long positions, i.e. buying a stock or other asset in anticipation that its price will rise, hence you would buy the stock at a low price and sell it for more than you paid. The difference represents your profit. Alternatively, there are Exchange-Traded Funds (ETFs) which follow a particular market average, such as the Dow Jones Industrial Average (DJIA) or the Standard & Poor’s 500 Index (S&P 500) and trade like stocks. ETFs seek to replicate the movement of the indexes they follow, less expenses. For example, if the S&P 500 rises 10%, an ETF based on the index will rise by approximately the same amount. The best strategy to make money in a bull market is to recognize the trend early and make smart buys. You can do this by choosing to trade with a regulated broker such as Banc De Binary, with a view to maximizing your profits in this potentially lucrative market situation.

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