What are Bullish and Bearish Markets? You must have frequently heard the words bullish and bearish from many traders. These words may sound foreign to you now, but by the end of this article, they won’t be anymore because we will explain these terms to make them sound as simple as possible. Basically, the terms “Bull” (bullish) and “Bear” (Bearish) are used to define the overall financial market performance in general. A bull market means that the trend is going up meanwhile a bear market means that the market is going down. Bear in mind that a single day cannot determine whether the market is in bullish or bearish form. It can take several weeks or months to tell which direction the market is heading towards.
Bull Market History It is assumed by some traders that bulls first became synonymous with rising and falling prices when individuals would place bets on whether dogs are able to kill a bull chained to a post which is called bullbaiting. The enchained bulls will then use their horns to defend themselves from the dogs. Others believe that bearskins were used to describe the market behavior in the 18th century when dealers in bearskins were reported to have traded bearskins before they were brought in. The term bear reportedly became very popular in the early 18th century when referring to stocks after a trade company's stocks collapsed after being sold by investors.
What happens in a Bull Market? In a bull market, there is confidence and positive expectations that good results will happen soon. The bull market occurs when the financial economy is doing well. This is usually related to the equity market. Despite being related to the equity market it applies to all financial markets like currencies, bonds, and commodities.
What happens in a Bear Market? The bear market means that a negative trend is happening in the financial market. Traders or investors sell risky assets like those from evolving markets. The chances of losing are far greater because prices tend to lose value. When the bear market occurs, investors would mostly switch to short-selling or move to safer investments.
Why does it Matter? Forex trading is always completed in pairs; if a currency is weaker the other is strengthening. You can trade both ways. What does this mean exactly? Actually, it means you can take a long (buy) or short (sell) view in both currency pairs. This will allow you to take advantage of the rising and falling markets by defining the bull and the bear trends. Understanding the financial market trends properly can make a trader better decide on how to manage risks and when to move in and exit trades. As forex trading is always done in pairs, buy the strength, and sell the weak must be your trade.
Bull vs Bear Markets It is very important to remember that a bull market is considered by an overall sense of confidence and positive growth. A bear market is linked with a general sense of failure which tends to show fear in the hearts of stockholders.