One of the first terms you normally hear are bullish and bearish. But what do they mean? What do bulls and bears have to do with trading? Well it is very important to understand these two terms. Simply understanding the two will make your life easier since they are often used within the trading community. The terms are simply given to an uptrend or a downtrend. So if the market is going up it is bullish and if the market drops, it is bearish. These two terms reflect the emotions and confidence of traders in the market.
Bull/Bullish is the term used when the market is in an upward trend, so in this case we talk about a bull market. Such an uptrend reflects the emotion of traders, therefore in a market like this there are more buyers then sellers which result in rising prices. A person who believes the market will go up is therefore called a bull.
These Bull markets tend to happened when the economy is strong which can last for years. If the economy is good so will be the emotion of traders towards the market. Resulting in more people buying and less selling, leading to an uptrend.
Bearish is the opposite of bullish, so a downtrend. As well as with a Bull market, you can see the confidence and emotion towards the market. In this case traders are selling more than buying, Bears are in this case the majority trading, leading to a downtrend. Bear markets can occur due to decrease in confidence of a market, higher unemployment numbers etc. There is also the possibility that traders expect and speculate for a market to drop and therefore start selling. If there are enough of these traders, they can start a chain reaction resulting in more traders fearing losses and therefore sell. This can cause a bull market to become a bear one.
Now you know the meaning of these two terms, if you are able identify and understand these types of markets, you will be able profit from either one. You can either ride along with a bullish market by buying and selling for a higher price. On the contrary there is also a way of profiting of a bearish market. By going short you can profit from the downtrend in the market. And this is why it is so important to understand the terms.
Written by Juan Pablo’