What Does Bullish Mean in Trading?

Introduction

Being “bullish” indicates that the investor expects the price of a stock or the market as a whole to rise. Based on their analysis, bullish traders think that a market will see an increase in price movement. Being bullish is then purchasing an underlying market in order to sell it later on at a higher price and profit.

The term is occasionally used to refer to the entire stock market or economy. For instance, you might read that a particular economist has a bullish outlook on the stock market, indicating that person thinks the market will grow. Bullish perspectives on the overall stock market or economy can be either short-term or long-term, much like bullish views on individual stocks.

What Is a Bull Market?

Bull markets are most frequently associated with the stock market, although they can relate to any tradable asset, including bonds, real estate, currencies, and commodities. A financial market is said to be in a bull market when prices are rising or are anticipated to rise.

The term “bull market” is normally reserved for prolonged periods in which a significant share of asset prices is rising. This is because prices of securities increase and fall practically continuously throughout trading. Typically, bull markets linger for months or even years.

There are various traits that can be seen during a bull market. These include a rise in trading activity as more investors are prepared to purchase and hold onto securities in the anticipation of making a profit. Because investors are ready to pay more for securities in a bull market due to the anticipated possibility for price gain, these securities also typically have higher values.

Bull market-performing businesses may decide to reward their shareholders by raising dividends, which can be appealing to income-focused investors. Last but not least, during a bull market, there may be a surge in the number of businesses that go public and raise money through initial public offerings (IPOs), giving investors the chance to support the expansion of young, promising businesses.

Recognising Bull Markets

Bull markets are characterised by optimism, investor confidence, and anticipation that strong outcomes will last for a long time. It is difficult to foresee when market trends will alter on a constant basis. Part of the problem is that psychological impacts and speculation can sometimes play a significant role in market behaviour.

Because bull markets are difficult to foresee, analysts usually only notice this tendency after it has occurred. There is no single, uniform metric for identifying a bull market. Nonetheless, the most frequent definition of a bull market is when stock prices rise by 20% or more from their recent lows.

The Cause of Bull Markets

Bull markets often occur when the economy is strengthening or is already robust. They usually occur in conjunction with a strong gross domestic product (GDP) and a decline in unemployment, and they frequently coincide with an increase in corporate profits.

During a bull market, investor confidence will typically rise. The overall demand for stocks will be encouraging, as will the general market tone. Furthermore, there will be a general increase in the volume of IPO activity.

Bullish long-term and short-term trading

When an investor is bullish on a firm for the long term, it indicates that they have a positive outlook on the company’s future. They may also consider that the stock is undervalued at the current share price. An investor who believes in an entire industry may invest in multiple companies in the field in the intention of discovering the eventual market leader.

A short-term trader who is bullish believes that a stock will rise in the future days, weeks, or even minutes. This could be based on stock chart analysis or volume and price activity. The bright outlook in these circumstances may have little to do with the underlying company. For example, if a trader believes a company has been oversold, he or she may purchase shares in the anticipation of a swift reversal.

Other short-term traders are positive because they believe a favourable near-term event will occur. A trader, for example, may buy a stock the day before its quarterly earnings are disclosed, expecting that the firm will outperform expectations.

Taking Advantage of a Bull Market

Investors who wish to profit from a bull market should buy early to capitalise on rising prices and sell when they reach their peak. Although it is difficult to predict when the bottom and peak will occur, most losses will be minor and usually transitory.

Some strategies investors can use during bull markets are as follows:

Buy and Hold

The technique of purchasing a certain security and holding it in order to sell it at a later period is one of the most fundamental strategies in investing. This technique necessitates investor confidence, and as a result, the confidence that comes with bull markets serves to fuel the purchase and hold strategy.

Increased Buy and Hold

Increased purchase and hold is a riskier version of the plain buy and hold strategy. The concept of the increased purchase and hold strategy is that an investor will continue to add to their holdings in a specific security as long as its price rises. One frequent strategy for growing ownership proposes that an investor purchase an additional fixed number of shares for every predetermined increase in stock price.

Full Swing Trading

Full swing trading is one of the most extreme methods of seeking to profit from a bull market. Short-selling and other strategies will be used by investors following this strategy to try to squeeze out maximum gains as shifts occur within the context of a bigger bull market.

Retracement Additions

A retracement is a brief time during which the general trend in the price of a security is reversed. Even in a bull market, stock values are unlikely to rise indefinitely. Rather, there will be shorter periods of time when tiny drops occur, even as the overall trend goes higher.

Some investors look for retracements within a bull market and buy on the drop. The assumption behind this technique is that, if the bull market continues, the price of the security in issue will quickly rise, providing the investor with a discounted purchase price retroactively.

Types of Bull Markets

Basically you get four kinds of bull markets:

• Secular Market – In a secular market, the price of a certain investment may rise or fall over time. Stock prices rise in response to certain conditions, such as low interest rates and excellent earnings. This type of market often lasts five to twenty-five years.
• Market Bull – A market bull is a market triumph in which the market is gaining in value while the economy is also doing well. In the case of equities markets, the market bull began to increase the prices of company shares.
• Gold Bull Market – A gold bull market occurs when the price of gold continues to rise. This is a simple method for achieving investment success.
• Bull Bond Market – When interest rates fall and the stock market performs well, a bull bond market attempts to raise its value. The principal-only strips (PO) mortgage-backed instrument is the most frequent type of bull bond.

Notable Bull Markets in History

Throughout history, there have been multiple big bull markets, each with its own distinct traits and forces. These are only a few examples of historically significant bull markets. There have been numerous others, each with its own set of circumstances and motivators:

• The Roaring Twenties – This bull market in the 1920s was propelled by speculation and lasted until the 1929 stock market catastrophe. Rapid economic growth, soaring asset prices, and greater consumer spending characterised it.
• The Japanese Bull Market of the 1980s – The Japanese bull market of the 1980s was characterised by fast economic development and rising asset prices.
• Reagan’s Bull Market in the 1980s – The stock market underwent a bull market in the 1980s, fuelled by the Reagan administration’s economic policies and the excellent success of the technology sector. The S&P 500 index gained more than 100% during this bull market, which lasted from 1982 to August 1987. It came to an end with the Black Monday stock market meltdown in October 1987.
• The 1990s bull market, sometimes known as the dot-com bubble, was fuelled by the explosive rise of the internet and technology sectors. It ran from the early 1990s to the early 2000s and saw the S&P 500 index rise by more than 200%.
• The 2009 Bull Market is seen as the longest bull market in history. It began in March 2009 and lasted until February 2020. The S&P 500 index gained more than 300% as a result of strong profit growth, low interest rates, and investor optimism.