If you want to find success in trading, you have to understand the trading jargon. The financial markets have lots of these. In this article, we’re going to discuss the difference between bullish and bearish sentiment.
The Meaning of Bullish and Bearish
Bullish and bearish refer to the general sentiment that the traders feel. The way traders feel about a particular asset, market, or sector drives the movement of prices.
You will encounter these terms a lot, and you need to understand what they entail. If you read them on analyses and news headlines, and you don’t get their meaning, it would be difficult to make sense of that.
Bullish Means Optimistic
When a market or trader feels bullish, it means that optimism is the dominant mood. A bullish trader may be looking at increasing value. He or she starts buying more shares of a stock.
That’s because he or she is positive that the current strength in price will continue at least for the short term.
A market that is bullish is also in an optimistic mood. In a bull market, prices are rising. Investors are betting that prices will have higher highs. The economy also expands, and there is an overall expectation of continuing positivity.
Bearish Means Pessimistic
The bearish sentiment is the polar opposite of the bullish version. In this one, the prevailing emotions are risk aversion and pessimism.
A bearish trader feels negative about the investments and the broader market. He or she believes that risks are looming in the market. So, he or she also concludes that prices will inevitably go down. He or she stays away from risky assets and opt for safer ones like bonds and gold.
A bearish economy is basically the same. During bear markets, a lot of companies are seeing dull earnings reports. The economy is faltering, usually showcased by GDP and inflation reports. Central banks try to cut rates to boost the economy.
Trading in Bullish and Bearish Markets
You may be thinking you should only trade during bull markets. But that’s actually not a great plan. You see, there are good ways to make money in both bull and bear markets.
The key is finding the right strategy to fit the market’s sentiment. Having said that, there are many ways to approach each of the two kinds of markets.
For a Bull Market
During a bullish market, you can try and ride the momentum of the market and hold on to your assets. If the bullish sentiment goes on for long, you can see your investment grow.
Or you can go against the tide and see which stocks, for example, are most likely to experience a fall. During bull markets, investors are typically gleeful of the earnings. They forget that it all could end in snap.
For a Bear Market
In bear markets, you can either secure your profits and sell assets that you think will depreciate. You can lock in profits by selling them while the price is high.
Or you can go contrarian again and start buying more of the falling assets. You see, the bull always returns, as does the bear. So, find a good asset that can go up, and buy more of it during a bear market. When the bull market comes, if you’re patient, you reap your profits when its price appreciates.