A bull market is an informal, yet widely used, concept that describes the behavior of certain markets or market segments when participants seem particularly exuberant about the future prospect for prices.

Bull markets are characterized by steadily rising prices, typically in stocks, the ignoring or downplaying of negative or adverse information and events, the undue promotion of positive information and events, and the belief in some powerful underlying force that will drive prices to new highs regardless of the inevitable headwinds and profit-taking that usually temper price increases.

The Source of a Bull Market

All bull markets are ultimately the self-reinforcing product of the beliefs of the market’s participants. Market participants receive some significant information that promises a substantial increase in value, and they believe that this positive information will have such a strong impact that it will “change the game” in that market for the foreseeable future.

This belief is then reinforced as the participants in the market continue to push the prices higher despite any negative information, which then validates their belief that the price should be rising.

Bulls Versus Bears

The other side of the market sentiment coin from bulls are bears. While a bull thrusts upward with its horns, hence the name for a sharply rising price line, a bear swipes downward. A bear market can occur just as readily as a bull market, when participants believe some outstanding negative event has occurred and put undue weight on future negative events and information.

Final Thoughts on Bulls, Bears and Market Sentiment

While a bull market sounds quite similar to a bubble, and a bear market as the opposite of a bubble, there is an important and distinct difference.

All market participants are human, or programs developed by humans, and they operate on sentiment and expectations, alongside information and data.

While it is important to recognize when market sentiment is particularly strong or weak, simply discounting market sentiment as a mistake waiting for a correction is a grave error.

Sentiment will always be a major driver of markets, up or down, so smart investors must learn to navigate bull and bear markets like they would the currents of an ocean.

You may be the one who steers the ship, but you need to do so with the underlying ocean currents in mind, or you will quickly find yourself lost and adrift.