Identifying Bull Markets : Chart Patterns and Bull Market Bottoms

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Bull Markets Definition

A Bull Market is a market where the prices are rising or are expected to rise. There are more buyers than sellers in this kind of market phase. Any and every good news whether big or small, shall act as a trigger for the prices to go up. Any bad news will either lead to a sideways price movement or a very short lived selling pressure. Bad news acts like a pressure cooker whistle, the blowing of which releases the pressure off the bulls for some time. This is a necessary resting period for the market so that it can move further higher after a pause. But eventually a time comes when the market reaches a hysterical stage, when everyone is bullish, everyone has bought the stocks, there are no bad news in sight, everyone is greedy and expects the prices to go up further, penny stocks are in great demand,  the neophytes also come to the market in hopes of making a quick buck, IPO’s are lined up like never before, huge amount of money is being  sucked out by way of IPO’s and Right’s issue subscriptions, companies are expanding businesses at break neck speed, newspaper headlines are full of growth and prosperity, there is recruitment all round, government revenues are buoyant and ever rising. This is all because of the reason that there is overall super bullish sentiment built up in the market. This is called ‘Optimism.’ The peak of such optimism is the culmination of a bull market top.

How to identify bull markets in charts?

The price chart of a Bull Market will show Higher Tops and Higher Bottoms in the price movements. The same situation is visible on many of the individual stocks and sectors. There is rise in volumes as the prices are going up and during correction phases the volumes are low.

Identifying Bull Markets and Bull Market Chart patterns
Identifying Bull Markets and Bull Market Chart patterns

How to identify bull market tops in charts?

In general bull market tops are studied better on the averages, i.e. on the stock indices, example Sensex or Nifty. Observing bull market tops over a past century throws lot of insights. The top formation in the bull markets are generally slow and steady process. There are three or four broad sections or phases of up moves, after which market looses its steam and starts a long drawn downward spiral. The trading volumes at the peak are maximum, however internal breath of the market has already started to weaken by that time. This is the beginning of the start of a bear market.

Identifying Bull Market Tops using Price Volume Technical Analysis
Identifying Bull Market Tops using Price Volume Technical Analysis

Conclusion

It is the desire of every trader and investor to sell at the bull market top, but that seldom happens. The emotion of greed is so powerful, the crowd behavior is so intense, that it becomes impossible to go against the consensus. Majority continues to follow the crowd opinion and thus they fail to sell at the top. In fact, it the magic spell of greed which blinds the independent thinking process of men. It is only by practice and observing and studying the past bull market tops that he/she will be able to sell at or near the top. Selling at the bull market top is the biggest victory for an investor in the financial market and extremely rewarding too.

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