A bull market is normally said to exist when investor confidence is on the rise. Investors become optimistic about the markets and show increased investing in them as they expect price increases. Generally this can happen before the economy shows any clear sign of recovery.
The trigger for a bull market and investor confidence may stem from different reasons. It may be that the pubic or investors feel that the worst of a bad situation is over. For example; Economic growth will have a positive effect on the markets. If businesses report an increase in their profits, it could indicate that consumers are spending and this will aid the economy.
These events will have a positive effect on the investor’s mood and confidence, therefore encouraging them to invest more of their money into the market. This rise will further reinforce other investors to have confidence in the market and have a positive outlook. The positive cycle will continue until such time as there is a change in sentiment or a change in economic outlook. The market top is not very noticeable and usually investors are not aware that it has reached its high until it is noticeably turning into a bear market.
There are profits to be made while in a bull market. This can be achieved by taking advantage of rising prices. Ideally an investor should buy in the early and sell at the higher end of market rally. During a bull market there is more possibility of making a profit then during a bear market. When looking at companies to invest in, it is important to make sure that they are financially sound and that they will continue to perform well for the foreseeable future. Some stock prices may rise considerably for a short time and then drop again as profit taking occurs.
Diversify your portfolio not only with different companies, but also invest in the global markets. This way if one market takes a dip, you still have other markets than can balance the loss. Avoid buying heavily and then waiting to sell in one move. This is very risky and could see you lose heavily too. Take your time when choosing which stock to invest into. Do not follow the crowd blindly. If you get people giving you stock tips, do not take it at face value. Rather do your own research and see if it really is worth buying.