Forex traders often come across the two terms 'bear' and 'bull' in the financial news and experts' discussions. These two terms are used to explain how the market is generally doing - that is, whether there's an uptrend or a downtrend. For any stock or index ,Forex trader, it makes sense to have a better understanding of the dominant trend that is in place, so that he can make informed trading decisions.
Differentiating bull and bear market - what do they mean for Stock Market?
A bull market refers to a financial environment where the long-term trend is on a rise. It is characterized by a continued upward movement of the stock prices. The term "bull" is used to refer to the entire stock market but may be applied to a particular asset as well. In a bull market, the market sentiment is positive and the investors are looking to invest in stocks. Positive economic figures such as low unemployment can lead to such an optimism outlook among stock investors.
Conversely, a bear market is one in which the long-term trend is in a decline. Stock prices continuously drop, resulting in a downward trend. In a bear market, pessimism is the dominant sentiment. In such an environment, the market sentiment is negative as investors begin to move their money out of the equities. Typically, when the country's economy is going through a rough patch, this may be due to a political or monetary crisis.
Since trading binary stock options involves predicting the direction of change in the stock’s value, traders can actually earn in both a bear and bull markets situation. They must identify the trend carefully, and choose to execute a call or put option according to the expected direction of change in the value of the asset. In a bull market, when the stock prices or an index is rising steadily and continuously with no obvious signs of a decline, a binary options’ trader takes advantage of rising prices – and may make a prediction according to this trend. Even if the stock is bearish, the binary stock options’ allows a trader to earn. Similarly, an index binary options trader can simply select a put option if he expects an index to fall further at the expiration time. A binary options trader must understand the historical trends of an asset and recognize if these trends typically influence the asset over a short or long-term time frame. Both bear and bull markets have an influence on the investments, it's important to determine the market status during a trading decision.
Importance of analysing the bullish or bearish trend
Just because the general trend is going downwards or upwards, it doesn't mean there won't be fluctuating trends on short expiry trades. So, a call option in a bullish time or put option in a bearish market situation won’t always be correct. Trends change constantly and it's important to use the technical and fundamental analysis in order to better predict the direction of change in the asset value during the time from strike time to expiration time. For instance, even if the current market is bearish and the stock has been declining, the launch of Google's Android OS, 6.0 Marshmallow or another product may lead to a spike in the value of Google’s stock. By monitoring the news and identifying that Google's stock historically reacts to product announcements of this kind, a trader can make an educated decision on how to execute his binary options trade. Prior to executing the binary stock options, it's important to monitor and spot the financial news that will likely have a major effect on the stock price. Irrespective of the market status, a product launch or an announcement of the company's quarterly profits can suddenly make a difference to an asset price.
A clear idea of the bear and bull markets can help you to better predict the direction of change of stocks and index ,forex trading.
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