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Bullish vs. Bearish Market: How to Distinguish


June 2021

In trading, you should focus not only on learning new strategies and indicators but also on discovering the terms that are widely used within the trading community. This will help you understand what the news and educational resources tell you. In this article, we will talk about bullish and bearish markets, what these terms mean and in which situations they are applied.

Bearish: What It Means in Trading 

Unsurprisingly, the term bearish comes from the word bear. So, let’s dive in to find out what it means for traders. A bear is a trader that believes the market will move downward. So, they open a sell or so-called short position. Why bear? The price of the asset declines. There is an association that bears pull the price down with their paws. Also, it's believed that the term was created around the 18th century. There was a proverb, "don't sell the bear's skin before catching the bear."

The term bearish can be applied both to a trader and a market. So, you can see the phrase that they are bearish, which means the trader believes the price will fall. A bearish market reflects the situation when the price drops by at least 20% from recent tops. The period of the fall depends on the considered timeframe. On the daily chart, the price should go down for at least a month. If we look at the 5-minute timeframe, the assets should slide for at least a day. 

A bearish market reflects the situation when the price drops by at least 20% from recent tops. 

However, these rules are approximate. When you look at the price chart, you will easily understand whether the market is bearish. On the daily chart of the EUR/USD pair, you can see the price was down for a year. It’s a real bearish market. 

Bearish also relates to the market trend. You can hear that the trend is bearish or there is a downtrend. It will mean that the price goes down for a long period.

Bullish: What It Means in Trading

On the other side of the spectrum, bullish refers to bulls, which is the opposite of a bear. There is no etymological reference to the creation of the bull term. More likely, it was used as an opposition to the bear one. Bulls think the market conditions are favorable for the asset's appreciation. That's why they push the price up with their horns. 

Bullish also relates to both a trader and a market. Traders are bullish when they open long positions as their fundamental or technical analysis signals an upward price movement. 

The market can be considered bullish if the price surges by at least 20% from recent bottoms. Also, the price should rise for some time. Similar to the bear market, we can't define a certain period. However, you will understand whether the market is bullish looking at the chart. 

The market can be considered bullish if the price surges by at least 20% from recent bottoms.

On the daily chart of EUR/USD, you can see an uptrend that was going strong for 7 months. 

There is a bullish trend or uptrend as well. It shows that the price appreciates for the long term. 

Bullish vs. Bearish Markets: Characteristics 

Let's compare bullish vs. bearish markets. 

 

Bullish

Bearish

Market Behavior 

The price increases 

The price declines 

Supply and Demand 

When the market is bullish, it means the demand exceeds the supply. Thus, many investors want to buy an asset and are ready to pay any price to get it. But there are few investors who can offer this security for short-selling.

In a bearish market, more investors want to sell an asset, and fewer want to buy it. Thus, the price goes down. 

Investor Behavior

In the bull market, traders are optimistic due to positive factors that boost the asset's price. 

Although the bear market is potentially profitable for traders, the investor sentiment is negative, making them sell the asset.

Factors

A bull market is supported by positive reading for assets. For instance, releases that define economic growth push a domestic currency up. Positive earnings lead to an appreciation of the company's stocks. 

As there is a wide range of securities, there is a large list of factors that can cause bear market conditions.

The bear market always relates to something weak. It can be a weak economy that affects currencies, weak earnings that impact shares, etc. 

Investor/Trader Opportunities

A bullish market is positive both for traders and investors. 

A trader can enter the market and close the position when the price increases in value enough.

An investor, who holds a security, earns on the price surge. 

If you are a trader, you can both buy and sell without ownership of the asset. 

If you are an investor, you can sell the asset only if you are an owner. 

Bullish and bearish markets are opposites. Still, if you are a trader, you can earn on both of them even simultaneously. Opening one trade in a bull market, you hedge your funds entering a bearish one. 

How to Determine Market Trend Types

The bearish and bullish terms also relate to market trends. You can hear that the trend is bearish or bullish. It will mean that the price either goes down or up for a long period. To define whether the market is bullish or bearish, you can look at the chart and see the direction of the rate. If the asset goes up, the market is bullish. If the price declines, the market is bearish. 

However, not all ups and downs reflect bull or bear run. The market should move in the same direction for the long term. The term differs for each timeframe. 

It's vital to understand that the market can't always move in the same direction. There are falls even within the bullish trend or jumps when the market is considered bearish. It is just market corrections that can happen due to unexpected news, demand/supply inequality, etc. 

It's vital to understand that the market can't always move in the same direction. There are falls within the bullish trend and jumps when the market is considered bearish. It is just market corrections.

Also, there are conditions when the market is neither bullish nor bearish. It's a period of correction or sideways movements. It happens because bulls and bears can't take control of the market. If you need to define the market sentiment ahead, you can use fundamental and technical analysis that will determine (not with 100% accuracy but with a high grade of it) where the price will go. 

What Investors and Traders Do in a Bullish Market: Top Strategies 

We are sure you know that investor and trader behavior varies as the underlying concepts of their activity are different. Investing is an opportunity to take advantage of security’s appreciation with the following selling when the price is high enough. Also, investors can get additional payments holding the assets—for instance, stock dividends.

Trading is more speculative. However, some people find trading more appealing than investing since it relies on numbers-based analysis rather than holistic fundamental analysis. Traders open a long position to close it when the price reaches a certain forecasted level.

Strategy 1: Buy When the Price Appreciates

In the bull market, the price increases. The main strategy of both investors and traders is to buy the asset at the lowest price to gain as much as possible. It's not easy to enter the market at lows as there is no confidence it will be bullish. That's why traders and investors use fundamental and technical analysis. 

A trader should close the position when the price is high enough. Investors can sell the asset when the price reaches a certain rate that is suitable for them. 

Strategy 2: Increase a Successful Trade

Besides a common strategy, when a trader opens a long position and closes it at a certain level, they can add funds while the trade is open. If you see the market keeps rising, you can add funds and increase your trade. 

What Investors and Traders Do in a Bearish Market? - Top Strategies

The bear market is even more different for investors and traders than the bullish one. If the market is bearish, it means that the asset an investor owns depreciates. It's a loss for them. Meanwhile, traders have an opportunity to succeed even when the price goes down as they don't own an asset but only speculate on the price difference. 

Strategy 1: Sell When the Price Depreciates

If you are a trader and predict the price will decline, you can open a short position, set the level the price is supposed to reach, and earn if your projection is correct. In these circumstances, you should define the price fall as soon as possible. In case you are an investor, you should hurry to sell your asset before the price plunges. 

Strategy 2: Add Your Funds

The second strategy for the bear trader is to add funds if the short trade is profitable. It’s possible to add money to increase the position size and replace the take profit order to allow your trade to stay open for longer. 

Conclusion. Bullish vs. Bearish: What Market to Trade

Let's summarize. Bullish and bearish markets are opposite as they reflect different price directions. In the bull market, the price surges. In the bear, it declines. A bull market provides opportunities for traders and investors. In contrast, the bearish market is positive only for traders who don't own assets and trade the price difference. 

The major pitfall for traders is to define whether bulls or bears prevail in the market. To gain experience, you can open a Libertex demo account, which resembles the real one but allows practicing without losses.

Why to trade with Libertex?

FAQ

It's time to structure all the information provided.

How Do You Know If a Market Is Bullish or Bearish?

If the price goes upwards by at least 20% from recent bottoms for a certain period, the market is bullish. In case the price slides by at least 20% from recent tops for a long period, it's a sign of the bear market. 

Is Bullish Good or Bad?

The bullish market is neither good nor bad. It's just precise trading conditions that occur when the price goes up. So, traders can open a long position. 

Is Bearish Good or Bad?

Despite a common misconception of beginner traders, a bearish market provides the same grade of opportunities that the bullish market does if you trade, not invest. Trading is available for buying and shorting. 

What Is the Longest Bull Market in History?

The longest bull run in history happened to the S&P 500 index, lasting from March 2009 until March 2020. The stock and indices markets are most susceptible to long-term trends.

What Is the Longest Bear Market in History?

The longest bearish run prevailed in the market for 31 months, beginning in 2000 after the dot-com bubble blew out. 

Is It Good to Buy Bearish Stocks?

It's good to buy bearish stocks when a trend reversal is soon. Thus, you get an opportunity to buy the shares at a low price and potentially gain profit when the rate surges. 

Is It Better to Buy Bullish or Bearish?

A trader should buy when the market is bullish. Still, it's vital to catch the moment when the price is at the lowest levels of the upcoming bullish trend. If the market is bearish, wait for the price reversal and open long trade. 

What Are the Best Stocks to Buy in a Bear Market?

There are no best stocks to buy in a bear market. If the market is bearish, you can wait for the reversal signal and buy the shares that declined to an affordable rate. 

Why Is It Called Bullish Bearish?

Bullish relates to a market in which the price rises or a trader who projects the price will increase, so they buy an asset. The market is bearish when the security rate declines. A bearish trader opens a sell trade.

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