Bull market

A bull market is a prolonged advance; the image is a bull tossing its horns upwards. The opposite is a bear market. In stock markets a rise of 20% from a recent low is sometimes used as a rule of thumb for a new bull market, but like the bear-market threshold it is a press convention, not an official definition.

In forex

Because every currency pair is one currency against another, a bull market in one side is a bear market in the other. A sustained rise in USD/JPY is a bull run for the dollar and a bear run for the yen. FX traders therefore usually talk about bullish or bearish trends on a particular timeframe.

Worked example

Illustratively, gold rises from 1,900 to 2,400 dollars an ounce over a year, with three pullbacks of 5% to 8% along the way. The overall move is a 26% gain, a clear bull market, yet a trader buying at the top of each rally would have sat through several painful dips. Bull markets are rarely smooth.

Practical notes

• A strong bull market can tempt traders to add leverage as confidence grows. Losses are still calculated on the full position, and reversals can be sudden. See leverage and margin.
• "Buying the dip" works until the trend turns. Defining in advance what would make you wrong is part of any plan.
• Trend-following tools such as moving averages are designed for these phases but lag at turning points. See trend following and moving averages.