Bullish vs Bearish Markets – What’s the Difference?

What is a Bull Market?

A bull market is a financial market (whether it’s currencies, metals or commodities) where prices are rising or are expected to rise. General optimism, investor confidence, and expectations of continuous strong uptrends characterize a bull market. These uptrends usually last for weeks, months, or even years, but can be as short as a few days, depending on the surrounding circumstances. Predicting changing trends is sometimes difficult as trader psychology and speculator behavior can play a role.

Markets become bullish generally when the economy is doing well or coming out of a previous slump. For instance, individual currencies may rise in line with a strong GDP output, or drop when unemployment figures or interest rates aren’t favorable. Supply and demand forces still govern in a bull market, so weak supply but strong demand (as in the case of commodities such as oil or natural gas) will see prices rise as more investors want to purchase the asset than are willing to sell it.

What is a Bear Market?

A bear market is the opposite of a bull market. This market condition is characterized by falling prices and a generally pessimistic outlook. Traders begin selling rather than buying as they try to get out of losing positions, and the onset is usually bad economic news or figures such as low employment. The onset of a bear market also has to do with psychology, as traders who believe something negative will happen before it’s happened to take action by selling assets to avoid losses.

A bearish market can thus become a self-fulfilling prophecy, where a large number of pessimistic traders may start a down-trend by actively selling off the asset by expecting the price to drop, but in effect cause the price drop themselves. This can cause others to panic and get out of their positions as well. This trend is reversed, however, when speculators come in and buy on the low and prices slowly rise again as traders are attracted back, leading eventually to a bullish market.

You can profit in both bullish and bearish markets

Traders who have knowledge of the conditions the cycles described above bring and how to navigate them, can take advantage of both bullish and bearish markets. When you understand the meaning of bullish and bearish, you can accurately identify the cycles and when and how to profit off of them. It is possible to make money during sinking markets, and no matter whether prices are rising or falling, a shrewd trader can come out on top.

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