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What is Stock Rally?

A Stock Rally is a continuous price movement that refers to period of sustained increases in stock prices. Investors can observe Stock Rally during either a bull- or a bear market, typically translated to quick and / or substantial upward moves over a relatively short period of time. The term, Rally, is typically acts as buzzword on any kind of media platform to signal a period of rising prices being about to transpire quickly.

Everyone knows, in par with the stock market stock prices show volatility with constant fluctuations. Even seasoned stock analysts find it difficult to forecast coming price movements and trends' direction, because stock prices can fall unexpectedly after a long rise, and vice versa the market can also experience a sudden increase after a long period of plummeting prices.

Rallies are typically associated with bull markets, but can occur in bear markets as well.

A Bear Market Rally involves the transpiring of a sudden uptrend in prices in an otherwise strong downtrend. Market specialists' definition is not unambiguous but, a price increase of 5% or more (up to 20%) can be considered a bear market rally where the movement to the upside is just a temporary bounce before a more significant downtrend continues.

Rallies start all of a sudden, and do not last long. Historically bear Market Rallies occurred during the stock market crash in the Dow Jones Industrial Average in 1929, hitting the market bottom in 1932, and in the late 1960's until the early 1970's. Bear Market Rallies are often categorized as follows. Short-Term Bear Market Rallies usually last from half a day to two days. This type of rally can be usually experienced when there are several lows on the market within a week or month.

Medium-term bear Market Rally is often triggered when a strong buying potential on the stock market is combined with an oversold medium-term momentum has triggered a rally of 20%. With other words Medium-term bear Market Rally refers to a period when the market experiences repetitive bounces or short-term rallies.

Though it's not typical and rarely occurs, rallies can last longer, up to five years. They can be a prelude to an economic recession, or wars. Sometimes this criterion doesn't apply like at the 1987 crash was triggered by market derivatives and was not associated with any economic crisis.

How an investor should react to a Bear Market Rally?

At first peek, a bear Market Rally sounds like a positive market condition since it acts as a pause from an otherwise downtrend. Bear Market Rally can carry increased risk for investors that buy stocks, under the assumption that market will change direction to the upside. Despite of their anticipation they may end up closing their long positions with loss, when the rallies wane and the downtrend resumes its strength.

The defensive strategy? You can avoid losing your hard-earned dollars during a bear Market Rally by accurately planning your trades and setting up strategy for entries and exits as well as developing a well-defined risk management.

There Is Bull Market Rally And Bear Market Rally

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Stock Rally Is A Period Of Increasing Price

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Bull Market Rally can occur for a trove of different reasons, such as a better performing economy, tightening of labor market, increased consumer buying, enhanced stock valuations and above-consensus earnings releases.

How can you identify you are in a bear Market Rally or a bull Market Rally?

Studying the events, technical factors and characters of stock charts you may observe a couple of key differences between bear and bull markets that can make you apt to identify the current trend, and the direction it will drive stock prices into. Typically, a rally declining momentum can be detected by consecutively lower closing prices also referred to as lower lows. When a Rally is picking up momentum, market distinctively shows increasingly higher closing prices also referred to as higher highs.

Stock Rally That Starts All Of A Sudden Usually Does Not Last Long

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A rally is a period of sustained increases in the prices of stocks

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There are some technical indicators that would help you to identify upward and downward momentums as the majorly used momentum indicator, or other tools that include the relative strength index (RSI), moving averages (SMA, EMA) and the stochastic oscillator. It's worth to keep a close watch to trading volume and look for momentum. Fewer market participants riding with the trend's wave is a valuable signal that the trend is weak, while a high buying volume can signify a strong trend. Investors can exploit the benefit of volume indicators to follow the volume of executed trades and price actions in order to identify momentum.

Also the array of volatility indicators stands out from the crowd when it comes to technical tools for trend recognition. Although volatility indicators don't determine the trend's direction, watching the speed of price actions can be an indication of market sentiment. Though it cannot be a primary tool to appraise market directions stock market news can serve as a compass when trend identification is in question. Quantitative research of globally positive or negative news can be an indicator of what's about to come. If there is significantly less good news, it could indicate a market reversal in bull market, and oppositely less gloomy news may signal an imminent uptrend in bear market.

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