IronTrade continues to write articles for newbie traders. Now we would like to explain the most widely spread market terms: bulls and bears. These terms describe both market state and traders. In simple words, it helps to indicate if the market is growing or declining. Usually, it makes sense for the traders’ portfolios.
What is the difference?
Let’s start with the basics: a “bull” and “bear” mean different animals that attack each other differently. Bulls try to hit the enemy with long horns from down to up. Bears try to attack from up to down by striking the enemies with their paws.
So, a bull market means a general upward trend when assets grow, and the economy rises. On the contrary, a bear market means that the economy is falling and assets decrease in their value.
All financial markets are influenced by investors’ moods, so when we speak about those who invest in growing, we mean bulls. If we talk about those who invest in falling, we mean bears.
How to identify a bull market
When the economy is strong, the employment level is high and the overall state is good, we can call it a bull market. Usually, a bull market is indicated by a constant rise in prices. For example, if some company’s stock rises, it is also referred to as bullish.
The demand for the asset is also stronger than the supply, making the price go up as traders want to buy it, expecting a rise in value. If a trader could buy the asset at a lower price, he may benefit later from selling it much higher. Or, in the case of options, just get the income when the strike price is higher than the opening price.
How to identify a bear market
On the contrary, there is a bear market when the price constantly decreases. As a rule, the market is considered a bear market when reduced by more than 20% from its peak. When a bear market remains for some time, more and more traders tend to believe that the decreasing trend will continue, making it fall even more. They try to get rid of the asset, and supply exceeds demand drastically. People start selling in panic, which only adds fuel to the trend. The economy slows down, unemployment rate gets higher because the companies begin to fire more and more employees.
How to identify the market fast?
When you start trading and identify the preferred market, there is no better choice. Bear and bull markets have the same number of advantages and disadvantages. Traders should have appropriate skills to trade each of them. Understanding the current trend is critical for every trader because it will determine the tactics you should choose. Choosing an appropriate trading method based on a current market condition might be the key to higher profits. So, try to use indicators and graphical tools to identify the market. For example, Moving Averages indicators, RSI, and Stochastic are your best choices. They can help to evaluate the price movements, help to understand the underlying trend better, and identify possible trend reversals.
Remember: no tool or method guarantees 100% success or correct indications every time. Professional traders on IronTrade use a combination of technical and fundamental analysis to form a reasonable opinion about the situation. Take care and good luck!
