Market trends are one of the most fundamental aspects of financial markets. We can define a market trend as the general direction in which an asset or market is moving. Thus, market trends are closely watched by technical analysts and fundamental analysts.
Bull markets are generally relatively easy to trade as they allow for some of the simplest trading and investment strategies. Even inexperienced traders can succeed in truly favorable bull market conditions. It is also important to understand how the markets move cyclically.
So what should you know about bull markets? How can traders profit from bull markets? We will explain everything to you in this article.
What is a Bull Market?
A bull market (or bullish run) is a state of the financial market in which prices rise. The term bull market is often used in the context of the stock market. However, it can be used in any financial market including Forex, bonds, commodities, real estate, and cryptocurrencies. In addition, a bull market can also refer to a specific asset like Bitcoin, Ethereum, or BNB. It might even apply to a sector like utility tokens, privacy coins, or biotech stocks.
You may have heard that Wall Street traders use the terms bullish and bearish. When a trader says that he is in the mood for a rise in the market, it means that he expects the price to rise. When they are bearish, they expect prices to fall.
Bullish sentiment can often mean that they have also taken a long position in that market, although this is not always the case. Bullish sentiment does not necessarily mean there is room for long-term trading, it simply means that prices are rising or are expected to rise.
It should also be noted that a bull market does not mean that prices do not fall or fluctuate. This is why it makes sense to look at bull markets for long periods of time. In this sense, bull markets will contain periods of recession or consolidation without disrupting the underlying market trend. Take a look at the bitcoin chart below. Although there are periods of downturns and several serious market crashes, it has been in a strong uptrend from the start.
So, in this sense, the definition of a bull market depends on the time frame that we are talking about. Usually, when we use the term bull market, we are talking about a period of months or years. As with other methods of market analysis, higher time trends will matter more than lower time trends.
Thus, in a long-term bull market, there can be extended periods of downturn. These countertrend price movements are known to be particularly volatile, although they can vary greatly.
Bull Market examples
Some of the most famous examples of bull markets come from the stock market. These are the times when prices for stocks and stock indices (like the Nasdaq 100) are constantly rising.
As for the global economy, it fluctuates between bull and bear markets. These business cycles can last for years or even decades. Some say the bull market, which began after the 2008 financial crisis and continued until the coronavirus pandemic, was “the longest-running bull market in history.” This may or may not be true – as we said, long-term bull markets can be associated with outlook.
That said, let’s take a look at the long-term performance of the Dow Jones Industrial Average (DJIA). We see that this is, in fact, an age-old bull market. Of course, there are recessions that can last for years, like 1929 or 2008, but the overall trend is always upward.
Some argue that we can see a similar trend with Bitcoin. But we cannot say for sure if Bitcoin will face a multi-year bear market and when it will. It’s also worth noting that most other cryptocurrencies (like altcoins) will probably never experience a similar price increase, so be careful about what you invest in.
Bull vs Bear Market – What’s the Difference?
These are opposite concepts, so the difference is not hard to guess. Prices are constantly rising in a bull market, and prices are constantly falling in a bear market.
It also causes differences in how best to trade them. In a bull market, traders and investors usually want to be long. In a bear market, they either want to stay short or stay in cash.
In some cases, keeping cash (or stablecoins) can also mean a contraction in the market as we expect prices to fall. The main difference is that staying in cash is more to preserve capital, and for short positions, to profit from falling asset prices. But if you sell an asset in the hope of buying it back on the reverse side, you are essentially in a short position, even if you are not making a direct profit from the reverse side.
Another thing to consider is costs. Staying in the stables is unlikely to incur any costs as there are usually no upkeep costs. However, many short positions will require a funding fee or interest rate to keep the position open. This is why quarterly futures contracts can be ideal for short and long positions as they are free of funding fees.
How traders can profit from bull markets
The basic idea behind trading bull markets is relatively simple. Prices are going up, so buying long and buying down is usually a smart strategy. This is why buy and hold strategies and the average dollar value are usually well suited for long-term bull markets.
There is a saying: “A trend is your friend until it changes.” It simply means that it makes sense to trade in the direction of the market trend. At the same time, no trend will last forever, and the same strategy may not work in other parts of the market cycle. The only certainty is that markets can and will change. As we saw with the COVID-19 epidemic, multi-year bull markets can be wiped out in a matter of weeks.
Naturally, in a bull market, most investors will be optimistic. This makes sense as prices are rising, so the overall sentiment should be bullish as well. However, even during a bull market, some investors will be bearish. If their trading strategy is right, they can be successful even in short-term bearish trades such as short selling.
As such, some traders will try to sell short recent highs in a bull market. However, these are advanced strategies that tend to be more suitable for professional traders. The less experienced trader is usually more profitable to trade with the trend. Many investors have fallen into the trap of trying to get around bull markets. After all, walking in front of a mad bull or a locomotive can be dangerous.
