Bulls and bears are the main participants in the forex market. They differ in market behavior. bullish and bearish are the terms commonly used in the world of finance, trade and investment. In forex trading, both types of traders expect a rise or fall in the exchange rate, buying or selling the base currency against the quoted one. Market participants try to make a profit due to the variable dynamics of the exchange rate. They represent two opposite views, positive or negative, in the financial markets.

Let’s take a closer look at who the bulls and bears are.

Bull in Forex market

Bulls are traders who expect that price will go up. A bull trader opens long positions, thus increasing demand and raising the price of a trading instrument. In the bullish market, the economy is doing well, the unemployment is declining, GDP is rising, and prices are also growing. This market is characterized by optimism, high expectations, and investor’s confidence.

The origin of the name is inspired by an analogy: the bulls thrust its horns up into the air, just as the bull trader “raises” the prices by aggressive purchases.

Bulls are aimed at increasing capital due to market growth. They buy to resell in the future at a higher price. Therefore, when quotes are growing, the market and the trend itself are called bullish. There is a gradual increase in prices over a certain period of time in the bullish market. In other words, the price moves only upwards during the entire time period.

Bull market phases

Analysts and economists talk of three main phases to a bull market:

• The first stage is referred to as the accumulation phase. It typically comes at the end of a downtrend, when everything seems at its worst. But, it’s also the time when prices are at their most attractive, because by this stage most of the bad news has already been priced in. Informed investors start to enter the market. The accumulation phase can be hard to spot and often comes amid continuing market pessimism, with many investors believing things can only get worse. The start of the accumulation phase sees a period of price consolidation, and during later stages of this phase the price of the market starts to move higher.
• The second stage is known as the public participation phase. In this period, negative sentiment starts to fade as business conditions improve and economic data becomes stronger. The steady flow of good news encourages more and more investors to move back in, which sends prices higher. The public participation phase tends to be the longest lasting of the three bull market phases, and also the one with the largest price movement. Long positions are taken up by technical and trend traders as the new upward primary trend confirms itself.
• The third stage of the three bull market phases is known as the excess phase. At this point, the market becomes hot again for all investors, and informed investors start to scale back their positions, selling them off to new market entrants. The last of the buyers to enter the market do so after big gains have already been achieved. They hope that recent returns will continue, but they’re buying near the top. Smart investors look very carefully for signs of weakness in the trend. If the upward moves start to peter out, it could be a sign of an approaching primary downtrend – the onset of the next bear market. Another important to be on your guard for the development of ‘secondary trends’ – short-term changes in price direction that last just a few weeks or months. A market correction is one type of secondary market trend and it’s used to denote a short-term price decline of around 5%-20%.

Bears in Forex Market

Bears are trying to lower the price, ie they are pessimistic about the rise in prices. These market participants expect that prices will fall. Bears sell their assets to buy them cheaper in the future. The bears swipe its paws downward, similarly, the bear trader seeks to reduce prices.

The bearish market is opposite to bullish: the unemployment is rising, GDP is declining, and the prices are also decreasing. Here the prices are constantly falling under the pressure of negative news and the ever-increasing number of positions to sell. The bearish market is characterized by a pessimistic approach and low expectations.

When quotes are falling, the market and the trend itself are called bearish. A steady downtrend is being formed in the market.

Bear market phases

• In the first phase– around and just after the market top – Investors ignore even the most obvious signs that the market is turning around. The general market averages are not immune from the volatility, as their daily ranges expand significantly along with the volume that accompanies the range expansion. prices and investor sentiment are high, but investors are starting to take profits and exit the market. Confidence in the market remains high.
• In the second phase, prices begin their rapid descent, trading activity and corporate earnings fall, and economic indicators are below average. Investor sentiment turns pessimistic and some investors panic. Market indices and many securities fall to new trading lows, and trading activity continues to decrease.
• In the third phase, the very fact that full recognition of market weakness has occurred means that the bull market has now entered bear market territory. At this juncture, participants begin turning away from their holding trades that increase their risk profile even slightly. Prices and trading volume go up a little as speculators start to enter the market.
• In the fourth and final phase, prices continue to fall, but at a slower rate. When prices become attractive enough to investors, and positive economic indicators start appearing, bear markets eventually give way to bull markets.

Market top and market bottom

It’s worth stressing that a market top (or high) isn’t usually a dramatic event – it just means that the market has reached the highest point it will see for the foreseeable future. A decline then follows, usually gathering in pace as time goes by.

A market bottom is the end of a market downturn, and the start of an upward trend (bull market). A market bottom is also very hard to pinpoint while it’s occurring, and investors who trade during false market bottoms can get caught out if the slide resumes. Baron Rothschild once reportedly advised that the best time to buy is when there is ‘blood in the streets’.

When the market changes

The bearish market may become the bullish one at any time. The reversal usually occurs after the market has moved into the oversold zone and the current price does not suit the sellers. Positive news on the base currency may also lead to the trend change. In this case, the bears will not be able to hold the market and will start closing existing deals.

The bullish market may exist until negative news is released or before moving into an overbought zone.

How to identify the trend

One of the most common ways is to use moving averages as a representation of the overall trend. Generally, when traders do this for trend direction they will use a slower moving or higher period moving average to determine the direction. For example, you may use a 200 day moving average to determine if the overall trend is up or down. The thinking behind this is that a slower moving average like the 200 will change direction much slower than a faster one. The trend is determined by the overall slope of the moving average. The other words, if it is going from lower left to upper right, we are in an uptrend. Of course, it works in the opposite direction as well.

Another common way to determine whether we are in a bowl market or their market is to use weekly trend lines. The support and resistance areas will move along the chart in a diagonal fashion showing which direction the market once the go overall. The higher timeframe the chart, the more reliable these trend lines become. One of the most reliable trend lines to use is one that shows up on a weekly chart. This is because it takes much more information as far as trades in order to push the price around, be it up or down.

Conclusion

Both bear and bull markets will have a large influence on your investments, so it’s a good idea to take some time to determine what the market is doing when making an investment decision. Remember that over the long term, the FX market has always posted a positive return. Much like the rest of the professional world, the Forex world has its own language that all traders speak in order to convey information to one another. Now that you know what a bull market and bear market are, you have an understanding of some of the most basic jargon that is spoken.