The bull market is a sign of optimism. When Wall Street insiders discuss a bull market, it means that stocks and other securities are on the way up, with their prices and value increasing. It is a term most used with the stock market, but a bull market can describe the movement of mutual funds and bonds, as well.

Bull markets are characterized by their investor confidence. It is a time of great expectation within the stock market. The top end of a bull market -- when the market reaches its peak and goes no higher -- is called the bubble. As with so many other terms within market theories, the bubble terminology is a metaphor. In this case, the bubble continues to expand, growing larger and larger, until it finally bursts. However, the burst does not necessarily mean a crash, but rather it is a slow descent into a bear market. Oftentimes, investors do not realize the bubble has burst until several weeks after the fact, when it is obvious that the market continues a downward slide.

Classical Definition

How do investors know they are in a bull market? The theory follows that if there is a twenty percent or more gain of a major asset class or index over a time period greater than one year, it is likely a bull market. The period of time is an important indicator. If that twenty percent increase comes quickly, in less than a year, it hasn’t established its staying power and could be nothing more than a short-lived rally before returning to a bear market.

Why twenty percent? It was a number established decades ago by those who were developing the theories used in the market today, and twenty percent was nice round, easy-to-work with number that showed realistic gains.

Different Types of Bull Markets

There are two distinct types of bull markets: the cyclical bull market and the secular bull market. A cyclical bull market is a short-term trend that lasts only one or two years. The secular bull market is the long-term trend that lasts from five years up to a full decade or longer. The longer a trend is in force, the more powerful that trend is. Secular bull markets are more desirable than cyclical bull markets.