What is a Bull?

Bull is a stock market term for an investor who is currently buying, or has already gone long on an instrument. The investor expects the market to rise and tries to use this prediction to make money on an uptrend.

Characteristics of a bull market

A bull market is a rising market in which the price is constantly reaching new highs. The following factors contribute to a bull market:

  • A prolonged period of rising stock prices
  • A strong and growing economy
  • Optimism and investor confidence
  • High dividends

How the Bull reduces risk

To limit the risks of a major drop in a stock's value, bulls use a Stop Loss. The investor determines in advance the price at which to sell the stocks if the market suddenly reverses. The second option to reduce bull risk is portfolio diversification: investments are made not only in stocks but also in other assets.

The bull trap

When the market heads strongly upwards after a decline, with the price of an asset breaking out above a resistance level, the investor sees this surge as a signal to buy the asset. But if the market falls again soon after the quick surge, this is when the investor falls into the bull trap, thereby failing with the plan to sell the asset quickly at a higher price.

A reversal occurs because bulls lack the strength to move the market further upwards. Once buyers realise that they are caught in a bull trap, they often choose to abandon their positions, selling the assets they have bought in a hurry at whatever price is available to avoid rising losses. High supply levels can trigger a larger collapse in an already falling market.

The confrontation between bulls and bears

The bull is the buyer in the market, and the bear is the seller. When the price moves in a sideways trend, there is an equal battle of bulls against bears, with none of them able to push the value of the asset to a new level. If the price goes up, the bulls are seen as stronger than the bears. If it falls, the bears are stronger than the bulls.

Bullish patterns

The most popular patterns used by bulls when analysing price charts are:

  • Ascending triangle – A pattern forms at the peak of the market when the bulls are unable to break important resistance. At the same time, the lows continue to rise, signalling pressure from the buyers. A break of resistance indicates a price climb to the height of the pattern
  • Bull flag – this pattern forms after a sharp rise and is a sideways movement with a downward slope. A breakout of the upper boundary indicates a continued aggressive growth
  • Bullish pennant – the pattern is formed when the market corrects after a rapid rise in price, forming a small triangle. A break upwards indicates an acceleration of the bullish trend
  • Double Bottom – A pattern forms when the bears try to take the initiative from the buyers, and prices fall after rebounding from the high, and double-testing the low. However, the sellers are not strong enough to break this support level. Pressure from the buyers builds up, the price breaks the high, and rallies to the high of the pattern