The trading industry has a very extensive glossary – a dictionary of terms and professional phrases. They aren’t just good for distinguishing other traders, but also for naming things that would otherwise need many words to be described.
Bullish and bearish meaning should not be ignored in the trading world because these terms will be useful for understanding how the market fares and what strategies you’ll want to utilize to achieve your goals. They aren’t complicated concepts, but there are a lot of details that can improve your understanding of the graphs.
Understanding markets and trends
Each security changes in value at its own pace. You can very clearly see how the price of each stock fluctuates and what specific risks are associated with these movements.
At any given moment, the price has a distinct direction (up or down), and this direction is broadly called a ‘trend’. They can vary in strength or ‘speed’, but the most important thing is the direction. This direction is called ‘bullish’ or ‘bearish’ – ‘increasing’ or ‘decreasing’.
The same goes for the larger markets. For instance, the oil industry can be a Bull market or a Bear market depending on where the general orientation is at the moment. If most securities in the sphere are dropping in price, then the market is strongly bearish, and so forth.
Why ‘Bear’ and ‘Bull’?
So, why is it called the Bull and Bear market? You can call it different names: positive/negative, growing/shrinking, upward/downward, and so forth. Most people in the trading world call it the Bull and Bear market based on how these animals behave when they pose for an attack.
It’s easy to memorize these if you imagine it this way: when bears attack, they’ll drop on you; but when bulls do – they’ll lift their horns. Respectively, ‘Bear’ means price drop, and ‘Bull’ means price lift. It’s not totally clear who came up with this concept, and it’s one of the things that people just do.
How does it get determined?
Simply put, the trend becomes bearish when the price starts decreasing. However, that’s only reasonable if you’re trying to explain the short-term situation. For long-term use, the markets are deemed bullish or bearish depending on their position in relation to the middle line. There are several constants in this equation:
- The middle line that shows an average price based on data from the previous 250 days
- The space above the line (bull space)
- The space below the line (bear space)
The market is deemed a Bull if the security currently costs more than the 250-day moving average (the Bear-Bull line). If it drops below this line, the market turns Bear.
How to use this terminology
It seems like this knowledge isn’t very practical. However, this isn’t just some terminology for the sake of naming stuff.
In many cases, knowing whether the market you’re currently looking at is experiencing price surge/drop either long-term or short-term will enable you to understand how trading works in general, as well as be more confident about entering the market if you use patterns or other indicators.
The patterns specifically rely on understanding whether the market/trend is bullish or bearish. A lot of them are reversal patterns (meaning that at their culmination they’ll change direction and mirror the previous trend), and, unless all the requirements are met, you probably won’t be able to accurately discern whether the trend is true or not.
It’s really important to keep these things in mind, and you really don’t need to strain much to do this:
- For short-term investments and patterns, you’ll want to quickly see whether the trend (the latest streak of candlesticks) is bullish or bearish
- For long-term investments and patterns, you’ll want to determine whether the market overall is currently rising in value or not – using the midline, as well as other indicators
It’s also prudent to keep an eye out for news outlets that report on these changes. If an article from a trustworthy website gives you a general estimation of some market or other, one of the first things they’ll tell you is how bullish or bearish they are. If they are strongly bullish, for instance, then entering the market should be profitable.
Reasons behind Bull and Bear
The reasons why the Bull and Bear market continues are many. There are many details and complex connections used by financial advisors to determine how the specific market will react to a particular action or simply if left to its own devices.
In a general sense, these things are fueled by demand, supply, and volume. Naturally, they’ll balance one another out and stay predictable. However, these can also be influenced by the human factor. A good example is the rise of DogeCoin after someone kept mentioning how good this coin is to his fans.
If demand, supply, and volume are all plentiful, then the market is most likely going to grow steadily. Take one of them out of the equation, and the market will start suffering. The difference between the Bear and Bull market is affected by the difference in these parameters.