Understanding Bullish Stock Markets
If you get involved with the stock market, you can be sure of hearing the terms bullish market, bull market, bullish stock market, bullish trading and the bulls, very often. When it's not those terms, it will most likely be their corollary - bears, bear market, bearish market or bearish trading - that you will hear. They are related and reflect two sides of the same coin.
 Bulls and bears are animals, as you know. However, they have come to be powerful symbolisms of the temperament and drive of stock markets. A market will be said to be bullish when its mood mirrors the power-drive of a charging bull. How's that?
The stock market has activity patterns that reflect the overall sentiment of the market or perception about certain stocks. Sometimes, the market is in an aggressive buying mood, with rising demand for stocks. That may be a a result of strong expectations about improving performance of the economy or individual companies. It may be driven by good results already announced. Such periods see investors staking more money to buy stocks and new entrants being attracted into the market. Such increasing demand invariably drives up prices, as the supply of stocks to the market struggles to meet with growing demand.
Most stocks will sustain strong upward price movements, as the market literally charges forward as a bull. The various price indexes will also strongly trend upward. Such extended upward price drive is a bullish market. Stocks that are driving upward in such market are also said to be bullish. Investors are, in that circumstance, described as bullish in sentiment. A trading session that's predominantly bullish in outlook is also described as bullish trading.
While most investors will like to see the market remain bullish and rising (that means profits in capital appreciation), the market, unfortunately, has never remained permanently bullish. Or bearish. A period of bullish trading will eventually give birth to a bearish period (period of sustained downturn in market activity and price performance). Strange, right?. Not really. The seed of the bear trend is also in the bull activity. Let's explain.
When the market is bullish, that bullishness initially feeds itself. Rising prices mean more profits and more profit potentials attract more investments, including the entry of new investors. More investment into the market drives prices further up, a process that continues to feed itself. However, everything has a limit.
Stock prices eventually rise to a level that any reasonable investor begins to see that the prices are no more reasonable. Stocks are over-priced. Stock prices rise well above the intrinsic value of the stocks. Price/Earnings Ratios (P/E) jump through the roof. Naturally, crazy things happen in such markets as investors get profit-drunk and can hardly think straight anymore. Well, some will. Opinions will begin to sound that the market is over-priced.
At some point, there will be cautious investors who reason that the crescendo has come or is near and it's time to take their profit and bail out. More investors may begin to sell to exit the market at the high. More sells may dampen the price push, triggering more concern about the likelihood of a continued surge. When more investors begin to sell and buying reduces, a reverse trend may set in. The birth of the bear market!
Any stock market with consequently record bull and bear periods. The Nigerian stock market enjoyed a long bull run that ended in the first quarter of 2008. Since then, the Nigerian Stock Exchange has been in a downturn, experiencing a prolonged bear period.
Investing in a bullish market may seem relatively easy as most stocks are heading up, driven by the market sentiment. Yet, you need to do your homework and be careful to select stocks that can withstand market setbacks. You consequently must stick to your investing strategies, even when the market is in such bubble. An important element of your bull market strategy is knowing how to protect your profits so as not to lose them to a reversed market. A trailing stock strategy will help. A scaled-up approach to profit-taking may also serve ypu well, especially when you begin to sense that the party may be coming to a close.
Bull market, as can be seen, offers investors good opportunity to make gains in rising stock prices. Such gains are only realized if the investor knows the right time to sell, because, in the long-term, the market will still fall. Bulls don't live forever.
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