Bulls and bears are the main participants in the forex market. They differ in market behavior. These terms appeared on the stock exchanges but quickly came into common use in most financial markets, including Forex.
On Forex, both categories of traders expect a rise or fall in the exchange rate, buying or selling the base currency against the quoted one. Market participants are trying to obtain profit due to the ever-changing dynamics of the exchange rate. Let’s take a closer look at who the bulls and bears are.
Bulls on Forex
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.
Bears on Forex
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.
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 market trend
To recognize which sentiment prevails in the market traders use technical analysis tools.
First of all, trends can be determined using the price chart. If we are talking about an uptrend in the market, then each subsequent maximum should be higher than the previous one, and each subsequent minimum should also be higher than the previous one. Then we can speak about the current trend as upward in the market.
Another common way to determine whether the market is bullish or bearish is trend indicator, Moving Averages. It has a form of a curve, which changes depending on the direction of the trend. A combination of two moving averages is usually used. The 50-day and 200-day MAs are widely followed by traders.
When the price moves above the curve, a bullish signal is formed. If the price moves below the MA, a bearish signal occurs. When the price crosses the curve, the trend is likely to reverse. Taking into account angle of slope, one may determine the potential direction and the strength of price movements in the market.
Also, such indicators as Bulls/Bears Power and ADX display the confrontation between bulls and bears quite clearly.
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To sum up, the sentiment of the market participants strongly depends on the exchange rate dynamics. When the bearish trend is observed, traders start selling actively, and prices fall. When the bull trend changes the bearish one, traders start buying to resell at a higher price.