Bulls And Bears In Forex
Bulls and bears are two of the most used words in all trading, including Forex. Without an understanding of these terms, a new trader can be left asking what animals have to do with financial markets? The purpose of this article is to explain what these terms mean and show how they are used in Forex trading.
What is a bull?
A bull refers to a market participant who believes that a market will increase in value, therefore they are a buyer or are looking to buy to profit from an increase in prices. It is easy to remember what the word means in markets because bulls have horns and thrust them in an upward direction, so bulls (a group of market participants) believe the market will move upwards.
To expand even further when you hear a trader say they are bullish, this expresses that they believe that prices will increase.
What is a bear?
A bear is a market participant who believes a market will decrease in value, they are either a seller or are looking to sell and profit from a decline in prices. Bears slash down with their claws, so bears (a group of market participants) in markets believe the market will move downwards.
When traders say they are bearish, their sentiment is prices will decrease.
Bulls and bears in Forex
Forex traders trade the exchange rate of two currency pairs, so fluctuations in either value will affect the exchange rate. For example, with EURUSD fluctuations in the EUR and the USD will affect the exchange rate (price of the market).
By buying a currency pair a trader is bullish the base currency (EUR) and bearish the quote currency (USD), by selling a currency pair a trader is bearish the base currency (EUR) and bullish the quote currency (USD). However simply put, if a trader buys EURUSD they are bullish but if they sell EURUSD they are bearish.
Bullish and bearish markets
Bullish and bearish markets refer to trends. A bullish market means a market is trending upwards i.e. making higher highs and higher lows. A bearish market is a market that is trending downwards i.e. making lower lows and lower highs.
Usually, a market is only deemed as bullish or bearish if the trend is occurring on a high timeframe.
How these terms relate to supply and demand
At the core, the terms bull and bear exist to describe supply and demand. Bulls are all participants that are buyers, therefore they represent demand in the market. Bears are all participants that are sellers, therefore they represent supply in the market.
When demand outweighs supply, bulls are overpowering bears, an uptrend (bullish market) will result. When supply is stronger than demand, bears are overpowering bulls, a downtrend (bearish market) will result.
Understanding bulls and bears in technical analysis
In light of the above explanation, how should the terms bulls and bears be interpreted when used in technical analysis? Us traders use technical analysis to determine areas of supply and demand so we can make the best decisions in terms of entering and exiting.
Therefore, bulls and bears are the market participants representing the supply and demand at these levels/ zones. If the market is approaching a support level and a trader says the bulls are getting ready, this means that demand (buying) should come into the market. Should the market print a large bearish candle at a declining trendline, and technical analysts say the bears are strong, this means that there is supply (selling) in the market.
Now the next time somebody asks you whether you are a bull or a bear, you won’t have to hesitate to give them an answer.
Now go look at those charts, are you a bull or a bear?