Bull vs Bear Market: Adapt Your Technical Strategy

The technical strategy that earned you hundreds of percent in a bull market is suddenly making you lose repeatedly now? You're not the only one experiencing this. Many traders on Bursa Malaysia use the same set of indicators regardless of market conditions, and wonder why their results aren't consistent.

The reality is, the stock market isn't a fixed environment. It alternates between three main regimes: bull market, bear market, and sideways market. Each regime has a different "personality", and technical indicators that work in one regime can become traps in another. According to Investopedia, the ability to identify current market conditions is one of the most important skills for technical traders.

In this article, you'll learn how to identify the current market regime, which technical tools are most effective for each regime, and how to adapt your strategy so you're no longer trapped using the wrong tools at the wrong time.

What's the Difference Between Bull Market and Bear Market

Before we discuss technical tools, you need to truly understand the differences between the three main market regimes.

Bull market is traditionally defined as a market rise of at least 20% from the most recent low. In a bull market, investor sentiment is optimistic, trading volume is high, and share prices generally make a series of higher highs and higher lows. Investors are willing to take more risk because of the belief that "the market will keep going up". According to Charles Schwab, the average bull market lasts about 6 years with cumulative returns of approximately 200%.

Bear market occurs when the market falls 20% or more from the most recent high. Sentiment turns to fear, investors start selling to protect capital, and prices make a series of lower highs and lower lows. Rallies that occur in bear markets often trap buyers because they look like recoveries but are actually just temporary bounces (bear market rallies).

Sideways market (also called range-bound or choppy market) occurs when prices move within a limited range without a clear direction. It's neither rising nor falling, but swinging between support and resistance. Sideways markets are the regime that traps traders the most because false breakouts occur frequently.

The most important thing to understand: each of these regimes changes how technical indicators work. A reliable breakout in a bull market becomes a fakeout in a sideways market. An RSI oversold buy signal in a bear market means nothing in a strong bull market. This isn't a flaw in the indicator itself. It's a matter of context.

Why the Same Strategy Doesn't Work All the Time

Imagine you're a fisherman. You use a large net to catch fish in the open sea. This technique works in open waters. But when you try to use the same net in a narrow river, you only get caught on rocks and trees. The net isn't broken. It's just not the right tool for that environment.

The same thing applies to trading. According to Investopedia, no single technical indicator works equally well in all market conditions. This is because each indicator is designed based on specific assumptions about how prices move:

Momentum indicators (such as MACD, moving average crossover) assume prices will continue moving in the same direction. This is true in a bull market, but false in a sideways market.
Mean reversion indicators (such as RSI oversold, Bollinger Bands) assume prices will return to the average. This is true in a sideways market, but dangerous in a strong bull market where prices can remain "overbought" for weeks.
Volatility indicators (such as Bollinger Bands squeeze, ATR) measure the degree of price fluctuation. They're most useful for detecting transitions between regimes, not for giving direct buy or sell signals.

The problem is, most traders learn one set of indicators and use them in all conditions. They buy every breakout in a sideways market (loss), buy every RSI oversold in a bear market (loss again), and eventually blame technical analysis itself. In reality, their technical tools aren't wrong. They're just using the right tool at the wrong time.

Technical Tools That Work Better in Bull Markets

In a bull market, the trend is your friend. Prices generally move upward, pullbacks tend to be shallow and quick, and breakouts have a high probability of success. The most effective indicators are those that identify and ride trends, not those looking for reversals.

1. Breakout Trading

Breakouts from resistance have a much higher success rate in bull markets compared to other regimes. This is because there's sustained buying pressure from optimistic investors willing to enter at new higher prices. When Inari Amertron broke resistance during the semiconductor bull market of 2020-2021, every breakout was followed by meaningful gains.

The key to successful breakout trading in a bull market: volume must surge at least 1.5 times the 20-day average on the breakout day. Without volume confirmation, breakouts still risk becoming fakeouts.

2. Moving Average Crossover

The Golden Cross (MA50 crossing above MA200) signal is most effective during the transition from bear to bull market. In a mature bull market, use shorter-term crossovers (EMA 9/21 or EMA 20/50) to identify entry opportunities on pullbacks. Stocks that stay above their 50-day MA in a bull market indicate a healthy trend.

3. Momentum Indicators (MACD, RSI Trend Mode)

In a bull market, MACD bullish crossovers have a higher probability of producing meaningful moves. More importantly, RSI needs to be read differently. In a bull market, RSI often stays above 40 and can remain in the "overbought" zone (above 70) for weeks without a major correction. Don't sell simply because RSI is above 70 in a strong bull market.

Practical example: During the Press Metal bull run from 2020 to early 2021, RSI frequently stayed above 70 for months. Investors who sold every time RSI was "overbought" missed most of the gains.

4. Pullback to Moving Average as Entry

In a bull market, pullbacks to the MA20 or MA50 often provide good buying opportunities. Price "respects" the moving average as dynamic support. The strategy is simple: wait for the price to pull back to the MA20/MA50, ensure the MA is still pointing upward, and enter when a bullish candlestick forms at that MA level.

Technical Tools That Work Better in Bear Markets

Bear markets change everything. Breakouts usually fail, downward momentum is extremely strong, and temporary rallies (bear market rallies) often trap buyers. In this environment, trend-following strategies become less effective, and you need to switch to a different approach.

1. Mean Reversion (Bounce from Oversold)

In bear markets, prices often fall too far too fast due to panic selling. This creates mean reversion opportunities where prices bounce back to the average after being oversold. RSI below 30 in a bear market often provides short-term trading opportunities for technical bounces, even though the overall trend is still declining.

Critical difference: in a bull market, RSI oversold means "buy and hold". In a bear market, RSI oversold means "buy to sell quickly" because bounces are usually temporary before prices resume their decline.

2. Support Bounce and Fibonacci Levels

Historical support and Fibonacci retracement levels become more important in bear markets. When Tenaga Nasional or Maybank fall to major support levels that have been tested several times before, the chances of a temporary bounce are high. The 61.8% and 78.6% Fibonacci levels often serve as meaningful reversal points.

3. Death Cross as Trend Confirmation

Compared to the golden cross which sometimes gives false signals, the death cross (MA50 crossing below MA200) in a genuine bear market is usually followed by an extended decline. Use the death cross as confirmation that the market regime has changed and adjust your strategy immediately.

4. Volume Spike on Declines (Climactic Selling)

In bear markets, watch for days where volume surges dramatically alongside sharp price declines. This often signals capitulation, where the last sellers have given up. After climactic selling, a temporary bounce almost always occurs. Stocks like Top Glove showed this pattern during the post-COVID decline where massive volume spikes preceded technical bounces.

Technical Tools in Sideways Markets

Sideways markets are the most difficult regime to trade. Prices go nowhere, breakouts frequently fail, and trend indicators give false signals repeatedly. However, if you know how to read them, sideways markets actually offer consistent trading opportunities.

1. Bollinger Band Squeeze and Range Trading

Bollinger Band Squeeze is the best setup in a sideways market. When the upper and lower bands narrow tightly, it tells you that volatility is decreasing and a price explosion is imminent. While waiting for that explosion, you can trade the range between support and resistance.

Range trading strategy: buy near the lower Bollinger Band (support) and sell near the upper band (resistance). Set tight stop losses outside the range in case a genuine breakout occurs.

2. RSI as a Pure Oscillator

In a sideways market, RSI works best as an oscillator. Buy when RSI reaches the 30-35 zone and sell when it reaches the 65-70 zone. There's no need to wait for RSI to reach extreme levels (below 20 or above 80) because in a range-bound market, RSI swings are typically smaller.

3. Stochastic Oscillator

The Stochastic Oscillator works brilliantly in sideways markets because it's specifically designed to detect short-term reversals within a price range. When Stochastic crosses upward below 20, it gives a buy signal. When it crosses downward above 80, it gives a sell signal. In trending markets, these signals are less reliable, but in range-bound markets, their accuracy increases significantly.

4. Avoid Trend Indicators

This is the most important point: in a sideways market, turn off or ignore trend indicators like MACD and moving average crossovers. These indicators will give many false signals because they're designed to detect trends, and no trend exists in a sideways market. Every golden cross will be followed by a death cross within a short time (whipsaw), causing repeated losses if you act on every signal.

How to Identify the Current Market Regime

Now that you know which technical tools suit each regime, the next question is: how do you know which regime is currently in play? Here are four practical methods:

1. Price Position Relative to MA200

This is the simplest filter. If the price (or FBM KLCI index) is above the 200-day MA and the MA200 is pointing upward, you're most likely in a bull market. If the price is below the MA200 and the MA200 is pointing downward, you're likely in a bear market. If the price keeps crossing back and forth across the MA200, the market is probably sideways. According to Fidelity, the MA200 is one of the most widely used long-term trend indicators among institutional investors.

2. Advance-Decline Line (Breadth)

The Advance-Decline Line measures the number of advancing stocks versus declining stocks on each trading day. In a healthy bull market, the A/D Line should rise alongside the index. If the FBM KLCI is rising but the A/D Line is declining (meaning fewer stocks are participating in the rally), this is an early warning that the bull market may be weakening. This divergence often precedes a transition to a bear market.

3. Percentage of Stocks Above MA200

Another way to measure breadth is to look at the percentage of Bursa Malaysia stocks trading above their respective MA200s. If more than 60% of stocks are above their MA200, the overall regime is bullish. If less than 30%, the regime is bearish. Between 30% and 60%, the market is likely in a transitional phase or sideways.

4. ADX (Average Directional Index)

ADX measures trend strength regardless of direction. An ADX reading above 25 indicates the market is trending (either bull or bear). A reading below 20 indicates a sideways market. This is useful because it tells you whether to use trend indicators (high ADX) or oscillator indicators (low ADX). According to Investopedia, ADX is among the most useful indicators for identifying whether the market is trending or not.

Putting It All Together: A Simple Framework

Indicator	Bull Market	Bear Market	Sideways
Price vs MA200	Above, MA200 rising	Below, MA200 falling	Crossing back and forth
A/D Line	Rising with index	Falling with index	Flat
% stocks above MA200	Above 60%	Below 30%	30%-60%
ADX	Above 25	Above 25	Below 20
Best technical tools	Breakout, momentum, MA crossover	Mean reversion, support bounce, RSI oversold	Bollinger squeeze, range trading, oscillator

Practical example on Bursa Malaysia: During the 2024-2025 bull run, the FBM KLCI stayed above its MA200, ADX was above 25, and more than 60% of stocks were above their respective MA200s. Stocks like Gamuda and Sunway showed breakouts that consistently succeeded. Conversely, during the early 2023 sideways period, breakouts on the same stocks often failed and returned to their original range within days.

Frequently Asked Questions (FAQ)

What is a market regime and why does it matter for technical analysis?
A market regime refers to the overall market condition - whether it's bull (rising), bear (falling), or sideways (flat). It matters because the same technical indicators produce different results in different regimes. A breakout strategy that works in a bull market will generate repeated losses in a sideways market.

What's the easiest way to identify the current market regime?
The easiest way is to look at the price or index position relative to the MA200. If the price is above the MA200 and the MA200 is pointing upward, you're in a bull market. If the price is below the MA200 and the MA200 is pointing downward, you're in a bear market. Combine with ADX for confirmation - ADX above 25 means trending, below 20 means sideways.

Why do breakouts always fail in sideways markets?
In sideways markets, there's no sustained buying or selling pressure to support price movement in one direction. When price breaks through resistance, there aren't enough buyers to sustain the momentum, and the price falls back into the range. This is called a fakeout and it happens very frequently in range-bound markets.

Can I use the same RSI settings across all market regimes?
You can use RSI in all regimes, but how you interpret it must change. In a bull market, RSI can remain above 70 for weeks without a correction. Selling just because RSI is "overbought" in a strong bull market will cause you to miss major gains. In a bear market, RSI oversold (below 30) offers short-term bounce opportunities only, not long-term buy signals.

What's the best indicator to confirm a transition between bull and bear markets?
A combination of Golden Cross and Death Cross (MA50/MA200 crossover), Advance-Decline Line, and changes in ADX provides the strongest confirmation. No single indicator is sufficient. A regime transition is usually confirmed when two or three of these indicators agree in the same direction.

Does momentum strategy only work in bull markets?
Momentum investing is most effective in bull markets because sustained uptrends support stocks that have already risen to continue rising. However, momentum can also be used in bear markets - specifically, downward momentum. Skilled traders can take short positions on stocks showing downward momentum, though this requires higher skill levels and risk management.

How often should I reassess the market regime?
For medium-term investors, a weekly assessment is sufficient. Check the FBM KLCI's position relative to its MA200, look at the A/D Line, and observe ADX every weekend. Regime changes don't happen in a day. They take weeks to develop, so you typically have enough time to adjust your strategy.

Can a Bollinger Band Squeeze be used to detect regime transitions?
Yes. A Bollinger Band Squeeze that occurs on the index (not individual stocks) often precedes regime changes. When overall market volatility drops to low levels, the subsequent explosion can determine the market's next direction. A squeeze on the FBM KLCI followed by an upward breakout often signals the beginning of a new bull market.

Conclusion

Technical analysis is not one-size-fits-all. The same indicators produce different results in different market regimes, and failing to recognise this difference is the main reason many traders lose money despite "knowing" technical analysis. Bull markets require breakout and momentum strategies. Bear markets require mean reversion and support strategies. Sideways markets require oscillators and range trading.

The first step is to stop looking for "one indicator that works all the time" and start learning to read market regimes. Use MA200, A/D Line, and ADX as your compass. When the compass shows the regime has changed, change your tools. Successful traders aren't those who are best at reading indicators. They're those who adapt fastest to market changes.

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Bull Market and Bear Market: Why Your Technical Strategy Must Adapt