Bullish vs Bearish Markets: How to Distinguish Them

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. As such, they open a sell or so-called short position. Why a bear? As the price of the asset declines, there's an association that bears pull the price down with their paws. Also, it's believed that the term was created around the 18th century, when 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 when the price drops by at least 20% from recent highs. The period of the fall depends on the timeframe being looked at. The price should go down for at least a month on the daily chart. If we look at the 5-minute timeframe, the assets should slide for at least a day. 

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

However, these rules are approximate. When you look at the price chart, you'll 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 may hear that a trend is bearish or there's a downtrend. That means 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, the opposite of a bear. There's no etymological reference to the creation of the term 'bull'. More likely, it was used as an opposition to the bear. Bulls think the market conditions are favourable 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 lows. Also, the price should rise for some time. Similar to the bear market, we can't define a certain period. However, you'll understand whether the market is bullish by looking at the chart. 

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

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

There's 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 and bearish markets are opposites. Still, if you're a trader, you can find opportunities in both of them. 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 means 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 rate direction. 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, and it 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 a bullish trend and jumps when the market is considered bearish. It's just 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's just market corrections.

There are also conditions when the market is neither bullish nor bearish. It's a period of correction or sideways movements when neither bulls nor bears can take control of the market. 

If you need to define the market sentiment going forward, you can use fundamental and technical analysis that will determine (not 100% accurately but with a high degree of confidence) 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 behaviour varies as the underlying concepts of their activity are different. 

Investing is an opportunity to take advantage of security's appreciation with subsequent selling when the price is high enough. Also, investors can get additional payments for holding the assets, such as with 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 for both investors and traders' strategy 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's no confidence the market will turn 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 suitable rate for them. 

Strategy #2: Increase a Successful Trade

Besides the common strategy of opening a long position and closing it at a certain level, traders can add funds while the trade is open. But please note that trading can be risky and can lead to losing all of your invested capital.

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, 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 the asset but only speculate on the price difference.

Strategy #1: Sell When the Price Depreciates

If you're a trader and predict the price will decline, you can open a short position, set the level the price is supposed to reach, and potentially earn if your projection is correct. You should define the price fall in these circumstances as soon as possible.

If you're 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 summarise. Bullish and bearish markets are opposite as they reflect different price directions. In a bull market, the price surges. In a bear market, it declines. 

A bull market provides opportunities for traders and investors. In contrast, a bear market is positive only for traders who don't own assets and trade on 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 you to practise with virtual funds, i.e., without risking real money.

It's time to structure all the information provided.