Forex Basics: Bull Markets vs. Bear Markets

When trading Forex or any other financial markets, you may often hear the expression “bull market” or “bear market.” Well, these are currencies/commodities/shares, but ANIMALS, that are traded. Though the actual origin of those “bulls” and “bears” is still under debates I have a simple explanation for you.

We mention the “bull market” when we see a financial instrument trending upward. Therefore, people are buying it (a currency, gold, etc.). And the “bear market” describes totally opposite tendency – a trend is going downward as people do selling.

Although these are the simplest definitions which I gave you, there are other ways of discerning the two types of markets. Traders will look into the chart to use the set of indicators or conditions, which help them to determine which (“bull” or “bear”) market they are in.

One of the most common ways is the usage of Moving Averages, which represent the overall trend. When traders are up to implementing this method, they will use a higher moving or slower moving period average to determine the trend direction.

For instance, you can use 200-day moving average to determine if the overall trend is moving upwards or downwards. The idea is that such a slower MA, unlike a faster one, will be changing its direction much slower. This is the overall slope of the moving average, which determines the trend. In other words, if you see it going from lower left to upper right, you got the uptrend. Furthermore, the opposite way is possible.

Another common way to define the market “diagnosis” of going up or down is to use trend lines. So called support and resistance areas will stretch along the chart diagonally and show the current direction of the market. As a rule, the most reliable trend lines come from the higher timeframe that the chart has. Furthermore, mark, that the weekly-chart trend line is considered by traders to be one of the most reliable. The reason is that it takes much more information as far as trades and pushes the price around no matter it’s up or down.

However, it actually does not matter how you call a market – “bullish,” “bearish” or trending upward/downward. It’s up to you, but know that these phrases are used by the majority of traders. Indeed, it’s a professional jargon. Alike other spheres, Forex has its own language that unites all the traders around the globe to convey information to one another. So now you know some of the lingual basics that a huge tribe of Forex-men use when searching for their FX luxury and following their dreams.