What is a Bull Market?
So what is a bull market? Put simply, a bull market (otherwise known as a bullish trend or up-trend) is a market that is steadily trending higher; characterized by a series of higher lows and higher highs. Generally speaking, if a market is bullish, you would be looking for opportunities to buy (go long).
In this piece we will show you a few examples of historical bull markets, discuss some methods for identifying a bull market and introduce a basic trend-following strategy that can be incredibly rewarding in the right conditions.
Examples of historical bull markets
EURUSD Daily | March – September 2017:
USDJPY Daily | October 2012 – March 2013:
USDCAD Weekly | April 2013 – December 2015:
The three charts above are very clear cut examples of historical bull markets. Note the series of higher lows and higher highs in each chart. Also note that some of these markets trend up for quite some time: USDCAD trended up for well over two years and USDJPY is arguably still in a bull market, five years on.
Identifying a bull market
One of the simplest ways of identifying a bull market is through the use of trend-lines. In the following example we have used a trend-line to trace the higher lows on the EURUSD chart above, and then taken the parallel of that line to trace the highs, forming a bullish channel:
As long as price remains within the channel, traders will be looking for buying opportunities.
Another method traders use to identify bullish trends is combining a fast and slow moving average. Below is the same EURUSD chart, but instead of drawing trend-lines, we have added a fast (red) and slow (blue) moving average (50 and 100 periods respectively):
As long as the 50 MA is trading above the 100 MA, the market is bullish and traders will be looking to buy.
Trading forex in a bull market
Bull markets are generally quite easy to trade, corrections tend to be quite shallow and as we pointed out above, bullish trends can last for extended periods of time. As such, one of the simplest and most rewarding trading strategies is the buy and hold or trend-following approach.
In our EURUSD/moving average example, once the fast moving average crosses above the slow moving average, you would look for buying opportunities. One presents itself a few weeks later when the pair closes back above both moving averages:
Note, if you entered long at this point with a 100 pip stop loss, as marked, the market then proceeds to move more than 1300 pips in your favour – that is incredibly good risk-to-reward and one of the biggest advantages of a trend-following strategy. Assuming a risk of 2%, you would now be looking at a rolling profit of close to 30% from a single trade.
As the market moves in your favour, you could gradually trail your stop loss higher, progressively locking in more and more pips. Another option is only exiting the trade once the market begins to turn; either when price closes below the fast moving average, or when the fast moving average crosses back below the slow, and a sell signal occurs.
Bull Markets in Forex Summary
- A bull market means price is steadily trending higher
- Bull markets are characterized by a series of higher lows and higher highs
- Generally speaking, if a market is bullish, traders will be looking for buying opportunities
- Trend-lines and moving averages can be used to help identify a bull market
- Long trend durations and shallow corrections make bull markets ideal for trend-following strategies