A bull market is a type of condition that the financial market can be in. Generally, this term refers to a time when market prices are on the rise for an extended period. As opposed to a bear market, where there is a general fall in market prices. In this article, we will explain what a bull market is, how to recognize one, and how you can take advantage of it.
If the term bull market is used, it typically is referring to a period of months or years where the market is on a trend towards rising prices. There is not a specific definition for a bull market. Generally, it is agreed on to be a period where stock prices rise by at least 20% after a decline of at least 20%. So, a small rise in pricing would not qualify as one, it must be an increase of at least 20%
Another way to recognize a bull market is by certain market characteristics that will appear during one. These include:
- It will generally occur when the economy is strong, or during a time that it is strengthening.
- Gross Domestic Product (GDP) is strong.
- There is a drop in unemployment.
- The is a rise in corporate profits.
- There will be an increase in Initial Public Offerings (IPOs).
As with other times, there are specific strategies that can help you to take advantage of such market circumstances. Of course, as will any type of investing, these strategies all involve varying levels of risk.
- Buy and Hold. This strategy is straightforward. It involves buying securities and holding on to them as the market increases with the plan to sell them later when the value is higher.
- Retracement Additions. With this strategy, investors try to take advantage of small dips in a bull market. This allows a security to be bought at a lower price during a time when the price will quickly move back up.
- Full Swing Trading. This is the most aggressive bull market strategy. It involves using short sales and other complex techniques to try to maximize profit.
Investing in a Bull Market
A bull market is knowns as a generally good time for the market. But this does not mean you do not incur any risk during this time period. Before making investment decisions you should always consult with an investment advisor who can help you make the best use choices.
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