HOW TO SPOT BEAR AND BULL MARKETS.

Markets trade in cycles, which means most investors will experience both bull and bear markets. The key to profiting in both market types is to try to spot reversals (when the markets are topping out or bottoming). Those are ideal places for investors to enter (or exit) positions.

The Advance/Decline Line

One way to figure out tops and bottoms is by studying the advance/decline line. The advance/decline line charts the number of advancing issues divided by the number of declining issues over a given period. A number greater than 1 is considered bullish, while a number less than 1 is considered bearish.

A rising line confirms the markets are moving higher. However, a declining line during a period when markets continue to rise could signal a correction.

A line that's been declining for several months while the averages continue to move higher could be considered a negative correlation. A major correction or a bear market may be likely. An advance/decline line that continues to move down signals that the averages remain weak.

However, if the line rises for several months as the averages have moved down, this positive divergence could mean the start of a bull market.

The advance/decline line is just one of the many indicators that can help you determine the trend.