There are never ending arguments by many market participants as to what constitutes a bull market, and a bear market. There are many definitions, interpretations, and downright confusions. Many technicians are so preoccupied with trend lines, moving averages, momentum indicators, and often, they neglect what really matters, and that is price itself. One of the first things and quite possibly the best thing I ever learned as a beginner technician years ago was discovering a very simple technique to identify a bull market from a bear market, and all you need is a price chart and a pencil.
A simple price chart of the SP500 from 2000 to 2002. What do we see? A series of declining tops and bottoms, which constitutes a bear market. But to the trained eye, we see more than just tops and bottoms. We see a "left translation" (LT) which is a signature of a bear market, and you can spot that early in the cycle thus avoiding the pain of suffering drawdowns and losses. Bear markets reflect supplies overwhelming demand and therefore, sellers are in control. Sell offs are interrupted by a sharp and sudden bounce which is often described as a short covering rally, for that is when short sellers take profits thus resulting in a sharp rise, which is short lived as sellers re-enter their positions after banking their profits. These short but sharp rises result in a LT because both the bottom and the top take place on the left side of a cycle.
Opposite to a bear market, a bull market is reflected by demand overwhelming supplies, and buyers are in control. Profit taking often creates a sudden down draft, but as buyers step in, a bottom is reached. Sometimes after a substantial rise, a longer correction takes place such as the period during the first half of 2004, but as soon as the bull market returns, the RT resumes again. These patterns of a prolonged rise interrupted by sudden plunges create the "wall of worry" for the investing public, but savvy traders seize these buying opportunities quickly and accumulate positions. These tops and bottoms take place to the right side of a cycle and thus the term "right translation".
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