Bull Markets vs. Bear Markets - An Explanation

When trading the financial markets, you will quite often hear the expression "bull market", or sometimes "bear market". While the exact origin of these two expressions is up for debate, the meaning is quite simple. The "bull market" is when a financial instrument is trending in an upward manner. In other words, people are buying it. Conversely, the "bear market" is when a financial instrument is trending in a downward manner, as people are selling it.

Of course, these are the most basic definitions for these two types of markets. There are other ways of discerning which type of market you are in, rather than these generalized terms. Traders will use several different types of indicators or conditions on the chart to determine whether or not to officially call a market a "bull market" or "bear market".

One of the most common ways is to use moving averages as a representation of the overall trend. Generally, when traders do this for trend direction they will use a slower moving or higher period moving average to determine the direction. For example, you may use a 200 day moving average to determine if the overall trend is up or down. The thinking behind this is that a slower moving average like the 200 will change direction much slower than a faster one. The trend is determined by the overall slope of the moving average. The other words, if it is going from lower left to upper right, we are in an uptrend. Of course, it works in the opposite direction as well.

Another common way to determine whether we are in a bowl market or their market is to use weekly trend lines. The support and resistance areas will move along the chart in a diagonal fashion showing which direction the market once the go overall. The higher timeframe the chart, the more reliable these trend lines become. One of the most reliable trend lines to use is one that shows up on a weekly chart. This is because it takes much more information as far as trades in order to push the price around, be it up or down.

While it doesn't really matter if you call a market a "bull market" or trending upward, you should know that these are phrases that are used by a majority of traders. It is simply a function of jargon. Much like the rest of the professional world, the Forex world has its own language that all traders speak in order to convey information to one another. Now that you know what a bull market and bear market are, you have an understanding of some of the most basic lingo that is spoken.

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.