What is a Bull Market and how does it work?
A Bull Market (or bullish market) is a situation in which prices are rising or are expected to rise in a financial market. The words "Bull Market" are most commonly associated with the stock market, although it can also refer to any cryptos, tradable asset, including bonds, real estate, currencies, and commodities.
Because security prices or crypto prices increase and fall almost continually throughout trading, the words "Bull Market" are usually reserved for extended periods during which a significant share of security prices or crypto prices is rising. Bull markets can endure months, if not years, at a time. In today's financial world and especially in cryptos, we are going through a lot of uncertainties and we can easily see some shorter Bull Markets compared to previous decades.
Bull Market: an overview
A Bull Market is characterised by high levels of optimism, investor confidence, and hopes that great performance will continue for a long time. It's tough to foresee when market trends will shift on a constant basis. Part of the problem is that psychological factors and speculation can sometimes have a significant impact on the markets.
There is no single statistic that can be utilised to identify a Bull Market. However, the most frequent definition of a bull market is a period in which stock prices or crypto prices climb by 20% after a 20% dip and before another 20% decrease. Because bull markets are difficult to foresee, analysts usually only notice them after they have occurred. The period from 2003 and 2007 was a major bull market in recent history. The S&P 500 climbed by a substantial margin following a previous decline during this time; but, as the 2008 financial crisis unfolded, major declines resumed after the bull market run.
Bull vs. Bear market
A Bear Market is the polar opposite of a Bull market, marked by falling prices and generally enveloped in pessimism. According to popular opinion, the use of the names "bull" and "bear" to describe markets stems from the way the animals battle their opponents. The horns of a bull are thrust into the air, while the paws of a bear are swiped downward. These behaviours serve as metaphors for market movement. It's a Bull Market if the trend is upward. It's a Bear Market if the trend is downward. More details on the Bear Market on this post.
Bull Market Characteristics
A Bull Market often occur when the economy is either strengthening or already robust. They are more likely to occur in the context of a strong gross domestic product (GDP) and a decrease in unemployment, as well as a rise in corporate profits. During a bull market, investor confidence will also tend to rise. The total demand for stocks or cryptos, as well as the overall tone of the market, will be bullish. Moreover, during a Bull Market, there will be a general increase in the number of IPOs & ICOs.
Notably, some of the aforementioned criteria are easier to quantify than others. While business profits and unemployment may be measured, determining the general tone of market comments, for example, can be challenging. The supply and demand for securities or cryptos will swing back and forth, with supply being weak and demand being robust. Few investors will be willing to sell stocks or cryptos, while many will be eager to acquire. Investors are more inclined to participate during a Bull Market in order to profit.
Bull Market & Green Candles
When looking at the charts of your favourite stock or crypto, you will see things called "Candles" or "Candlesticks". They are green or red depending on the trend in the timeframe you set up. Red candles mean the price is going down while Green candles mean the price is going up. You can have a look on our guide "How to read candles" to understand a bit more the different patterns.
If you want a more "visual" example, here is a bullish green candle.
Yes, this is not a manner of speech but Green Candles are indeed the bullish ones and the ones that (usually) show your profits. This is kinda how I got the idea of making those candles : I was tired to see red candles everywhere during the May 2021 crash, and decided I need a candle I can rely on to be green ALL THE TIME!
How to benefit from a Bull Market
People who wish to profit from a bull market should buy early to capitalise on growing prices and sell when the market reaches its top. Although it is difficult to predict when the bottom and peak will occur, most losses will be minor and transitory. We'll look at a few of the most popular bull market techniques in the sections below. However, because it is difficult to gauge the current status of the market, these tactics all include some risk.
On a softer note, our candle is ALWAYS bullish: no matter how the market is. So, bullish market or not, you never have to worry about it, no risks involved - just don't let it burn unattended for 24 hours. We tried it, no incident recorded but we are never too careful. And I can tell you 2 things about the 24 hours tryout:
- My wife was on the night watch because "I don't want to sit at home all day so I prefer to do it during the night". She regretted that (a lot).
- Our Candles burn for more than 24 hours without interruption (but I think my wife secretly wished it would just stop burning so she could sleep).
Purchase and Hold
The technique of purchasing an asset (stocks or cryptos) and holding it for the purpose of subsequently selling it is one of the most basic methods in investing. This technique necessitates the investor's confidence: why hang on to a security (stocks or cryptos) unless you expect its price to rise? As a result, the optimism associated with bull markets serves to drive the buy-and-hold strategy.
Increased Buy and Hold positions
Increased purchase and hold is a riskier version of the classic buy and hold strategy. The increased purchase and hold strategy is based on the idea that an investor would continue to add to his or her holdings in a specific security (stocks or cryptos) as long as its price rises. For every increase in stock price of a pre-determined amount, one typical technique for expanding ownership recommends that an investor will acquire an extra predetermined quantity of shares or cryptos.
Retracement additions or Buying the dip!
A retracement (or a dip) is a period of time when the price of a security (stocks or cryptos) reverses its overall trend. It's doubtful that stock prices will continue to rise indefinitely, even during a bull market. Rather, even while the main trend goes higher, there are likely to be shorter periods of time in which minor drops (or dips) occur. During a Bull Market, some investors look for retracements (or dips) and purchase at these times. This approach is based on the assumption that, if the Bull Market continues, the price of the asset (stocks or cryptos) in issue will soon rise, giving the investor a discounted purchase price retroactively.
Typically, Buying the Dip is the thing to do when you see.... red candles on the chart. If this is your strategy, this is the only time you will be happy to see some red candles. But once you did, you are going to wish only for green... green all the way.
Trading in Full Swing
The method known as Full Swing trading is perhaps the most aggressive manner of seeking to profit from a Bull Market. Short-selling and other tactics will be used by investors who use this approach to try to squeeze out maximum returns when movements occur within the framework of a wider Bull Market.
Dollar Cost Averaging (DCA)
DCA is a technique in which an investor invests a large quantity of money in tiny increments over time rather than all at once. During a Bull Market, DCA is similar to Increased Buy & Hold position as seen above. DCA is better to do during a Bear Market rather than a Bull Market but it can be done even though profits will subsequently be lower. The objective is to profit from market downturns without putting too much money at risk at any particular moment. DCA is intended to help mitigate the negative impact of short-term market volatility on an investment. If the price of an asset (stocks or cryptos) falls during the time you are dollar-cost averaging, you will profit if the price rises again. DCA can save you the time and effort of attempting to timing the market to get the greatest stock or cryptos prices if you aren't an expert market watcher. Find more information about DCA on our post "What is Dollar Cost Averaging (DCA)?".
Are we in the midst of a Bull Market?
First of all, the answer will depend on when you read that article. In general, a bull market exists when the market has climbed 20% or more from its recent lows. Since the crypto market's massive sell-off during May 2021, the crypto market has been super volatile, but also recovering substantially without reaching a new All Time High (ATHs) at the moment of writing that article (Beginning October 2021). Some experts predict the Bull Run or Bull Market resuming in que fourth quarter of 2021. No one has a crystal ball to predict the future (but you could get some very fancy crystal glasses filled with our green soy wax) and thus, we shall wait and see what is in stock for this last quarter of 2021.
As we said earlier, Bull Market or Bear Market, our Crypto Candle is always green and will remain steady throughout any storm coming on the markets. You can orders yours on our website.
The Crypto Candle Team