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Bullish vs Bearish Market

Bullish vs Bearish Market [Comparison] | FX Trading Master

Bullish vs Bearish market – people who often analyze stock market conditions are aware of these terms. These are basically standard terminology used to describe the condition of the stock market.

Trading has its own language, two of which are bullish and bearish. If you are just starting to trade, you’ll hear these terms frequently. Professionals denote the markets as being bullish and bearish depending on price movements.

You need to understand these terms as both can effectively describe the market opinions. Moreover, understanding what is bullish vs bearish market will help you communicate with other traders. You’ll also be able to know where the market is heading.

Bullish Market: What does It Mean?

Have you ever heard of “bull run”? When you hear it, you may think of a bunch of cattle running around on a farm. In reality, that is not the case. Though the term bullish comes from the bull, it conveys a different meaning.

A bullish market is a market that remains on the rise. It specifies that the stock prices are rising and economic conditions are mostly optimistic. When the market is called bullish, it means the industries in that country are growing very well.

Furthermore, the market will be growing throughout the bull market. The investment’s price is on the rise, which is also called an uptrend. Bullishness is a feeling adopted by traders or investors.

Investors often think that the investment’s price or securities will continue to rise over the long term. This period can be more than two months, as per the US Securities and Exchange Commission.

In the USA history of the stock, the longest bull market lasted for 4494 days. It ran from December 1987 to March 2000. However, it isn’t easy to define a specific period.

What’s More?

The market can be called bullish when the investment’s prices surge by a minimum of 20% from a recent market bottom. Bullish investors sometimes believe that the whole market is expecting overall gains due to go up.

An investor might also expect gains in a particular industry, bond, stock, commodity, or collectible. When an investor says bullish about a specific corporation, they think the company’s share will rise.

Although not every stock will essentially rise, the main equity index of the market will. You can tell whether the market is bullish from the daily chart of prices. There will be an uptrend for a certain period. It shows the price rises for that period.

Bullish: Where does It Come From?

Well, there is no linguistic mention of making the term bull. It refers to hypothetical purchases rather than overall optimism about prices and trend lines. Earlier, it mentions when someone took the stock hoping it would rise up.

Its meaning has evolved over the years to refer to the investors who believe that prices will rise. There are disagreements amongst etymologists about the origin of the term “bullish.” However, it possibly originated as a foil for the word “bear.”

So far, this generally accepted source of the word “bullish market.” There is another source of the phrase which is widely accepted. It refers to how the bull as animal attacks.

Usually, the bull bows its horns upward where the investors expect the market to go. This is most likely the widely accepted source of the phrase bullish.

Bullish Market: Advantages

  • Long-term financial gains surge significantly when the market is bullish. The importance of a precise plan for earning rewards is paramount here. Here investors need to plan their investments and assign financial resources precisely.
  • Investors can get benefits from their investment in such a market.
  • Choosing a phased method can help to get a better price for selling stock in the bullish market. You may get the desired price always but can come close to a profit.
  • The employment rate in a country increases while unemployment decreases.

Characteristics of a Bullish Market

  • When the investors are optimistic, the market turns bullish.
  • Bullies market raises the company’s success which in turn helps to increase the share price.
  • In the bull market, interest rates are low, and inflation is fast.
  • A bull market observes a rise in IPO activities.
  • GDP of a nation becomes higher in the bullish market.
  • During a bull market, most investors are confident that the asset’s demand will be inevitable.

Bearish: What does It Mean?

The bearish originates from the word “bear.” A market is called bearish, where the stock prices are declining. Here the investors are “bears” who think the market will move downward. Why is the condition called “bear”?

Just the way bears move forward by going down, the price of assets declines. It is said that the bear pulls down the costs with its paws. The term bearish is applied to both the market and a trader.

A market cannot be called bearish unless it has fallen 20% from the recent highs. Share prices drop down continuously in a bearish market. So, when you see the phrase “bearish,” it means the trader expects the price will fall down.

When a trader believes a company’s stock will go down, it denotes the bearish in that company. The bearish market can last for several weeks. As a result, it can cause the market to crash if it sustains for a few years.

The economy of the country slows down, and unemployment rises in the bearish market. An investor is likely to be bearish who predicts a market-wide decline in bonds, stocks, commodities, currencies, etc.

Bearish: Where does It Come From?

It is assumed that the term “bearish” was generated around the 18th century. There is a saying, “Don’t sell the bear’s skin before catching the bear.” So, the term bearish is somehow related to the time of trading the bearskins.

At that time, fur traders sold bear skins occasionally, which they haven’t prey yet. Fur traders did it as an early form of trading in the product. They never expected that the market value of that product would go down.

The trader makes a profit by buying the product at a price lower than the original selling price. Though they tried to keep the practice going, but failed. Later they led to the expression, “Don’t sell the bear’s skin before catching the bear.”

It indicates a warning toward making promises that you cannot keep. Lately, another popular expression is “Don’t count your chickens before they are hatched.” It has developed the habit of speculating on an expected recession among investors.

Bearish Market: Advantages

  • In a bear market, the investment price is low, which reduces the stock price. So, it allows many people to get shares and enter the market. Also, they can hold a low-price share for a longer period.
  • A bear market is best for people who want to restart their portfolio with new stocks.
  • Investor attains risk-taking and risk tolerance capabilities.

Bearish Market: Characteristics

  • Stock price falls down.
  • There will be a 20% drop in stock price for a certain period, at least two months.
  • Bearish starts to lose its investment confidence, and the viewpoint of losses is enormous.
  • Stock price decreases as it records a lower demand level for stocks.
  • In a bearish market, IPO activities go down.
  • Traders start to save money and spend them on necessary items. As a result, the GDP of the country falls.
  • The economy falls, the company loses their business which results in a higher unemployment rate.

Bullish vs Bearish Market: Comparison

There are many thoughts regarding the bearish vs bullish market to understand. You can identify the profitable one by looking at the comparison of stock market bullish vs bearish.

Let’s compare bullish market vs bearish based on the following characteristics. The investor should be aware of these characteristics.

Market Behavior

In a bullish market, the stock price increases while the stock price declines in a bearish market.

Supply and Demand for Securities

In the bullish market, the demand is higher than the supply of securities. Demand exceeds as many investors are ready to buy an asset at any cost. As the investor competes to get available equity, the share price gradually increases. A few investors can provide this security for short-selling.

The opposite happens in the bearish market. The majority of the investors want to sell an asset, and a few want to buy it. Here the demand is lower than the supply. As a result, the share price drops.

Investors Behavior

Traders are hopeful in the bull market due to favorable market sentiments. It boosts the price of an asset. They participate in the hope of getting a profit. However, the market sentiment is negative in a bear market.

Hence, the investor starts to take their money out of equities or sell them. They move it into fixed-income securities with the hope of positive sentiment. The decline of stock prices reduces the investor’s confidence.

Changes in Economic Movement

The economy and the stock market are strongly linked. The bull market strengthens the economy as people spend more money on stocks. On the other hand, a bear market weakens the economy. Since the investors are not investing enough, many companies cannot record huge gains.

Opportunities for Traders/Investors

A bullish market brings positive opportunities for both traders and investors. An investor can earn from the price surge by holding securities. Besides, a trader can close the stock position when there is enough increase in price value.

The bearish market brings different chances for traders and investors. Investors can sell an asset only if they own it. Conversely, the traders can buy and sell an asset without being an owner.

Frequently Asked Questions

Is It Better to Buy Bullish or Bearish?

In a bearish market vs bullish market, anything can be profitable if you know how to. The majority of the investors like to be bullish instead of bearish. Generally, the stock market tends to give positive returns for an extended period.

But some investors also want to be bearish. They hold a short position to make gains with some techniques.

Do You Buy or Sell in a Bullish Market?

The best practice is to buy stocks at an early stage and sell them before they reach the peaks.

Does Bearish Mean Buy or Sell?

No, it doesn’t mean to buy or sell. In bearish trading, it means the investor expects the market to experience a downward line. The stock price will drop in the bearish market.

What is the 3 Day Rule in Stocks?

The 3-day rule denotes anyone can include them into their strategies who participate in the stock market. The investor should wait for three days to buy stock following a considerable drop in a stock’s price.

Is It Good to Buy Bearish Stocks?

Sometimes it is good to buy bearish stocks. It allows you to buy more stocks at a lower price. Bearish should follow the dollar-cost averaging strategy to obtain gains.

Final Words

In a nutshell, understanding the bullish vs bearish market can help you decide which market is favorable. We suggest investing in both. Be an intelligent investor and move opposite of the one where most investors are moving.

You can buy when others are selling and sell when others are buying. What you have to keep in mind is correct timing. It would be best to guess the right time, which may be difficult for you as a starter. Whether it is bullish or bearish, plan your investments wisely!

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