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Bull Market: What is the Lifecycle of a Bullish Trend?

bull market bull trend bullish uptrend market

While many investors approach the markets with hopes to “buy low, sell high,” a more useful motto might be “the trend is your friend.”

A bullish trend, or bull market, occurs when a market increases in value over time. Some traders use a more specific definition: a 20% rise in price following a 20% decline, followed by another 20% decline to mark the end of the trend.

Normally used in reference to the stock market, bullish trends can also occur in real estate, commodities or forex trading. Furthermore, markets also tend to follow the adage “a rising tide lifts all boats,” and bull markets can spread across multiple sectors of the economy.

Qualities of a Bullish Trend

While the characteristics may vary, below are some common factors which can coincide with a bull market:

  • 20% rise in price from a previous low
  • Strong gross domestic product (GDP)
  • Strengthening or recovering economy
  • Low unemployment rate
  • Good corporate earnings
  • Investor confidence, positive expectations & general optimism in the market
  • Company stock buybacks

Life-Cycle of a Bullish Trend

Although no two bull markets are exactly the same, they generally occur in 4 phases.

  1. Pessimism: Investor confidence is still extremely low in this initial phase. News regarding the markets continues to be negative however the market no longer reacts to the reports. Despite this sentiment, keen and experienced investors will begin to enter the market at this time.
  2. Skepticism: The markets have begun to turn around, but the general attitude is one of uncertainty and disbelief. Media outlets may begin to change their tone regarding market expectations, but most investors remain skeptical. Volatility tends to remain high during this phase as short-term uptrends begin to appear in previously bearish markets. Although some participants will express doubt and claim markets have become over-valued, others will seize the opportunity to take part in the bullish trend while it is still young.
  3. Optimism: It is during this phase that mainstream investors begin to acknowledge the bull market. The news flow is now predominantly positive which brings a wave of new participants to the market. The optimism phase is typically the longest of a bullish trend.
  4. Euphoria: During the final phase of the bull market, the consensus among speculators is that there is no end in sight for the bullish trend. Traders who were previously reluctant begin to enter the market now and the market experiences a surge of volume and volatility. It is typical to see the number of IPOs increase during this time as new public companies try to harness the enthusiasm.

Hindsight is 20/20

Another important aspect of a bull market is that its dates can only be known retrospectively. That is, only when a bull cycle is complete can traders look back and see exactly when it took place.

bullish trend S&P 500 SP500 market

Created using NinjaTrader’s free advanced charting, the chart above tracks ES futures through a bullish trend that occurred between roughly March of 2009 and September 2018. Having recently experienced a 20% decline, some analysts may conclude that the more than 9-year bull cycle is officially over.

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