Bull Market: Definition, How to Identify, and Tips for Trading

If you’ve been trading for any length of time, you’ve probably heard the term bull market.

The bull has become a symbol of aggressive financial optimism and prosperity … There’s even that famous bronze bull statue in New York that was crafted to capture the spirit of this type of market.

And in 2020, this bull market is anything but normal. But to understand that, you need to know different markets in full.

So today we’ll dive deep into what a bull market is. Read on to find out how to identify if you’re in one and get tips on how to trade.

Let’s get started!

What Does the Bull Market Mean?

Financial market prices go up and down … but a bull market is a condition of a market where prices trend up.

It’s the opposite of a bear market where prices trend down. 

Both markets get their names from the way each animal attacks. A bull thrusts its horns up … A bear swipes its claws down.

In the case of the stock market, a bull market occurs when major stock indexes — such as the S&P 500 and the Dow — rise at least 20% and continue higher.

These markets can last for months … or even years.

What Are the Characteristics of a Bull Market?

Bull markets have certain characteristics that help you identify them.mLet’s take a look at some.

High Investor Confidence

These markets are beloved by investors. Investor confidence increases, and there’s lots of buying. And that motivates more investors to get more involved in the stock market.

As stock prices go up, investors become more convinced that the trend will continue … and so they purchase more stocks.

The laws of supply and demand go into effect. That pushes prices even higher.

Strong Gross Domestic Product (GDP)

GDP is one of the main indicators to track a nation’s economic health. Bull markets tend to happen when GDP is strong and healthy.

Low Unemployment

Because these markets are affected by how investors feel and the economy’s health, bull markets also tend to be in line with low unemployment.

Increased Business Investments

As investor confidence increases and more people get involved in the stock market, businesses become more confident. They start investing more in the future and products. This can be in the form of expansion or increasing staff and salaries.

Increased IPO Activity

Because these types of markets include higher optimism and a healthy economy, there’s a general increase in the amount of IPO activity.

What Causes Bull Markets?

These markets are caused when traders and investors feel confident and buy more stocks. There’s an overall optimism about the markets and productivity. Cash flows easily. And the overall demand for stocks outweighs supply — causing prices to trend higher.

Bull Market Examples in U.S. History

Now that we know what this type of market is and how it works, let’s take a look at some examples from the past.

Bull Market of the 1920s

An economic boom after the end of World War I led to a bull market. The economy was so good it was called the Roaring ‘20s.

The U.S. industry had been boosted by the war, and American companies captured markets that normally bought from other countries.

Consumer confidence was strong. So there was a large increase in sales for cars, radios, refrigerators, and other more. 

That led to more jobs and spikes in production and wages.

Confidence in the stock market grew and many Americans began to invest in securities. Buying on margin made it extremely easy to purchase stocks. That added even more fuel to the fire.

The demand for stocks was high, and the supply was diminishing. That led to massive increases in stock prices. Of course, if you know your history, you’ll remember the big crash that came after. 

Bull Market 1949–1956

After World War II, the economy entered another golden age. 

Just like in the bull market of the 1920s, consumerism was very high.

People from what’s known as the Greatest Generation entered their prime earning years. They pursued the American dream by purchasing homes, cars, modern appliances, and TV sets.

Families felt comfortable having more children, which led to what we now call the baby boom.

There was a lot of optimism and people began trusting the stock market again. The S&P 500 went up over 250% in that time frame.

Bull Market 1962–1966

John F. Kennedy ran his campaign on a promise to “Get America Moving Again.” After a brief bear market at the beginning of his office, he kept to his promise and the economy improved significantly.

Businesses began to expand and unemployment went way down to 4%.

Investor confidence increased and in 1962, the stock market rallied. The S&P 500 grew 80% during this time frame.

What Was the Longest Bull Market in History?

In 2008, the housing market crashed and ruined the finances of millions of families. The government spent $1 trillion to push interest rates down and help the economy gain footing.

On March 9, 2009, the market began its trek back up and gave rise to one of the greatest rallies in the stock market’s history.

The bull market run lasted a record 11 years. It saw record-setting gains despite difficult economic and political events — including trade wars, rising interest rates, and national unrest.

The S&P 500 grew significantly between 2016 and 2020, spurred on by President Trump’s combination of monetary and fiscal policies that promoted market growth.

The run only recently ended because of the coronavirus pandemic that shut down the global economy.

How to Trade Successfully in a Bull Market

When it comes to trading, it’s always smart to trade with the flow of a strong trend. The longer the time frame for a trend, the stronger it tends to be.

If you trade against a strong long-term trend, you run a higher risk of the stock turning against your trading plan.

Bull markets have strong trends to the upside. So be sure to take that into account when you trade in one.

Let’s take a look at some tips for trading in this type of market.

Watch for Patterns

If you pick the right stock that’s moving with a bull market, it can potentially be profitable … But don’t just buy a stock because you think it will go up.

Even in a bull market, there are downward moves and price corrections.

Make sure to watch for patterns so that you can better predict significant stock spikes that give you the opportunity to ride the momentum.

Make a Trading Plan

Don’t go into a trade blindly.

Once you see a pattern that helps you predict an upward move, write out a plan that you’ll commit to. This can do a few things for you…

First, it will free up your mind to execute your trade. When stocks move fast and real money is on the line, you need to move fast. If you have to think too much, it will delay your reactions … And that could cost you money.

Creating a trading plan helps you to do most of your thinking before you even enter the trade.

Second, it will help you control your losses.

One of the few things that you can control when you’re in a trade is how much you lose. By creating a trading plan, you’re dictating how much you’re willing to lose … And if you stick to your plan, it gives you a better chance of preventing huge losses.

Be Strategic With Your Entry

Limit your risks by being strategic with your trade entries.

Stocks go up and down, so you don’t want to enter a trade randomly. This is where technical analysis comes in…

By reading charts, you can look for areas of support as possible entries before a stock goes up. This will also allow you to set up tighter stop losses with your trading plans.

The right software is key for technical analysis. You’ll want one with easy-to-read charts and plenty of indicators to help you recognize patterns.

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Watch for Reversals

Once you get a good entry, you’ll also want to exit the trade strategically.

It’s a smart idea to have a price target as part of your trading plan … But a trading plan doesn’t guarantee the stock will ever reach its target.

Watch for signals of move reversals to help you determine when to exit a trade so that you can protect profits … or prevent losses.

Learning how to read and understand candle patterns can help you spot stock movement reversals.

Bull and Bear Market: The Key Differences

The big difference between these two markets is that in a bull market, stocks are trending up … In a bear market, stocks are trending down. There are other differences, as well.

In a bull market, traders and investors are optimistic and confident that the market will continue up. This motivates them to be more active in purchasing stocks.

A bear market, on the other hand, causes investors to fear that the market will continue to decline. This fear and lack of confidence prevent them from being active.

Demand vs. supply is another difference. In a bull market, demand for stocks outweighs the available supply. Bear markets are the reverse. The stock supply outweighs the demand in this scenario.

Frequently Asked Questions About Bull Markets

Let’s take a look at a few questions that pop up a lot when it comes to bull markets.

Are We in a Bull Market in 2020?

The short answer? Yes.

The global pandemic shutdown caused a market crash that ended the longest bull market run in history. It bottomed out on March 23, 2020 … and eventually rallied to all-time highs.

There was a slight correction in September. But if news of a newly approved stimulus package comes, we could see new highs again.

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Is a Bull Market Good or Bad?

It’s very good for different reasons.

First, it’s the result of a strong economy and high employment … which is good for everyone in the country.

These factors create widespread confidence, and people spend more money. More spending leads to thriving and expanding businesses. That excites traders and investors and motivates more people to invest in the stock market.

All this is good for traders. The increased investor confidence and higher trade volume lead to many opportunities for prepared traders.

It’s all a big circle.

What Is a Bull Market Rally?

It occurs when there’s a sustained escalation in stock prices … and investors believe that the trend will continue for an extended period of time.

Conclusion

We’re still in the best trading market many of us have ever seen … And let’s be honest, a lot of us are spoiled. Many people trading today have never experienced a prolonged bear market.

A lot of ‘experts’ and analysts are spewing about doom and gloom. And yet, here we are in another bull market approaching new all-time highs.

That’s not normal! I wouldn’t get too comfy. Who knows what’s next this year.

But if you recognize you’re in a bull market, you can find the best stocks to play and adjust your trading strategies to take advantage of the great opportunities it provides.

And be smart: prepare to adapt. No market lasts forever. So learn how you can find opportunities in any market.

Interested in learning how to trade this market with like-minded traders? Come join the SteadyTrade Team. Every day we provide members with mentorship, webinars, chat, trading education, and community. It’s where you can ask questions, get answers, and find your market groove. Get started today!

Have you traded in the 2020 bull market? Tell us in the comments below!