Bullish Vs. Bearish: The Key Differences Between Bulls & Bears was written by Courtney Luke and originally appeared on Arrest Your Debt. It has been republished with permission.
Bullish and Bearish are a pair of concepts that have been used in finance to describe the market’s overall positive or negative outlook.
What Does Bullish Mean?
Bullish means that the market’s overall outlook is positive. Bullish is when prices are rising or a market is on an upward trend.
Where The Term Bullish Comes From
The term bullish originated in Amsterdam as far back as 1637 to describe the overall outlook on markets. However, it wasn’t until later in 1880 that Charles Dow first published this term, referring to the stock market’s overall upward trend.
Since a bull market means rising prices, the hand gesture associated with bulls was often sold as good luck charms when shares rose. A popular item would be a small brass bull with one or two horns worn around the neck.
What Is A Bullish Stock?
A bullish stock is expected to rise in value. And, it’s not just the price of the stock but also the valuation and the assets under management.
How To Determine If You Are A Bull
A person who holds a bullish outlook on a financial market is called a bull.
A bull believes that the world is coming to a turning point and will soon become more prosperous on all levels.
A bull’s outlook may be due to several reasons:
1. A bull believes that the situation is improving
A bull believes that the overall situation is improving and that the economy may be at its tipping point, so he will choose to invest in areas he believes are more likely to grow.
2. A bull believes there will be a lot of growth over the next few years
A bull believes that there will be a lot of growth over the next few years. This is because they believe countries are going through economic changes and will become prosperous after their previous mistakes.
3. A bull holds a positive attitude towards the stock market
He believes that stocks and their prices will increase in the future.
4. A bull believes that the bull market beats the bear market
A bull believes that a bull market will beat a bear market because he assumes the economy is improving.
5. A bull believes in the value of stocks concerning their intrinsic value and company profits
A bull believes that stock will be worth more in the future because they believe a company will grow and make profits to raise its overall value.
6. A bull believes in the value of stocks based on solid fundamentals
A bull believes that the stock’s future earnings are strong and on track and that the stock price is low compared with its past growth, so he may choose to invest in stocks with good fundamentals.
7. A bull feels optimistic about the economy
He believes that economic conditions are improving and will continue to do so in the coming years.
8. A bull believes that the inflation level will decrease in the future
A bull believes that the inflation level will decrease, hence lowering interest rates.
9. A bull believes in the value of stocks based on corporate growth
A bull evaluates securities based on company profit and sales growth, as well as its ability to earn profits over an extended period.
Bullish traders always have a great deal of investor confidence.
Using the above outlooks, you can quickly tell whether you are a bull.
Historic Bull Market Periods
Historic bull markets refer to when stock prices go up for a specified period.
For example, consider the bull market of 2009-2020. This bull market is the longest in stock market history. The stock market went down after the 2008 financial crisis but bounced back again in 2009. An upward trend was reported in financial news until early 2020, when the COVID-19 pandemic set the stocks on a downward trend.
Another example is when the DOW Jones rose by 40 times in 41 years (1974 to 2013).
And also when the NASDAQ rose 974 percent in 19 months from May 2010 to October 2011.
What Does Bearish Mean?
Bearish means that the market’s overall outlook is negative.
Bearish is generally the case when prices are falling or a market is in a downward trend.
Where The Term Bearish Comes From
Bearish is believed to have originated from Amsterdam as far back as 1637 to describe the overall outlook on markets. However, it wasn’t until later in 1880 that Charles Dow first published these terms, referring to the stock market’s overall downward trend.
Historic Bear Markets Periods
Historic bear markets refer to when stock prices go down for a specified period.
The worst in history came in 1929 when the stock market crashed. It led to a market crash and an 89 percent drop in the Dow Jones Industrial Index.
Another primary bull market went down between 2007 and 2009, lasting 1.3 years and sending the S&P 500 down by 51.9 percent.
Between 1947 and 2021, there have been fourteen bear markets, ranging in length from one month to one and a half years. Analysis of available data found a range in severity, from a 51.9 percent drop in the S&P 500 to a decline of 20.6 percent.
The world recently experienced a bull market period in 2019 due to covid-19. Unfortunately, the bull market started after the virus outbreak, and the world is still trying to recover.
It affected significant economic players, except Amazon, whose share value increased, probably due to more people shopping online following government restrictions.
What Is A Bearish Stock?
Bearish stock is stock that is expected to drop in value. So it’s not just the stock price but also the valuation and the assets under management.
How To Determine If You Are A Bear
A person who holds a bearish outlook on financial markets is called a bear.
A bear is someone who believes that the market is overvalued.
Bears are controlled by market sentiment.
A bear’s outlook may be due to several reasons, including:
1. Investors expect the Fed to raise interest rates
A bearish investor expects the Federal Reserve Board of the United States (Fed) to raise interest rates, making it more expensive to borrow money and, therefore, increase bonds’ prices.
2. A bear thinks that a recession is coming
A bear’s wait for a bear market confirms their belief that a recession is coming.
3. A bear thinks that earnings will disappoint
Nowadays, stocks tend to move in predictable cycles. For example, a bear believes that the current bull market will end, and prices will fall as earnings disappoint.
4. A bear thinks that there is an economic crisis in the future, leading to a general slowdown of all markets
A bear is a person who assumes that there will be an economic crisis and no one will invest in the market. And this is because the economy will have a recession in the future, and many other factors are not looking promising. So he makes a bet that everyone involved with investing will dump their stocks to buy non-perishable assets.
5. A bear thinks that there is a bubble in stocks
A bear thinks that stocks are overvalued, the narrative of bull markets and market speculation are overhyped.
6. A bear believes that the economy will slow down
In a bearish environment, investors believe that the economy will slow down, which will lead to an increase in unemployment rates and a decrease in consumer spending.
7. A bear believes that inflation will increase
A bear is a person who thinks that inflation is increasing and the Fed will not be able to contain it. Therefore, he prefers to invest in bonds, stocks, and other assets not affected by inflation.
8. A bear thinks that security prices are too high relative to earnings and the company’s ability to earn profits over an extended period
Overall, a bear looks for any reason that he can find for why stocks are overvalued and is willing to sell them to buy something more worthwhile.
9. A bear believes that stocks will be a bad investment
When a bear thinks that stocks do not make sense anymore, he considers them a lousy investment and considers it better to invest in bonds and other assets less affected by inflation.
Bearish traders are generally short-term traders who rely on their bearish sentiments.
Using the above outlooks, you can quickly tell if you are a bear.
Bullish Vs. Bearish Market
For bullish markets, investors consider stocks to be suitable investments. In other words, it is widely assumed that the prices of stocks will increase.
When investors are bearish and prices of stocks are falling, it means that most people think that stock prices will drop. Therefore, they are considered bad investments when stocks are down, and investors buy them into their fall.
Bullish And Bearish Indicators
Bullish indicators are responsible for showing when prices are about to increase. They include a large number of stock transactions.
On the other hand, Bearish indicators show when prices are about to decrease. Such include a reduced number of stock transactions.
Today, bullish and bearish also describe other investment markets, such as currency and commodities. These days a trader can be bullish or bearish on interest rates, bonds, silver, gold, and stock market indices.
How To Invest During Bull Or Bear Markets
If you are a small investor, you can’t avoid bear or bull markets all the time.
When you invest in index funds, your investment will follow the market trend. So, for example, if you invest in a fund that has low exposure to stocks and high exposure to bonds and cash during a period of high stock prices and volatility when the market goes down, your portfolio will decline as well.
In contrast, if you invest in a fund with high exposure to stocks and little or no exposure to bonds and cash when the market goes up, your portfolio will be hit by falling prices.
You should always consult a financial advisor before you invest in these markets.
Examples Of Bearish Investors
Warren Buffett is considered to be a renowned bearish investor. He was nicknamed the world’s most significant investor because he believes investors shouldn’t take unnecessary risks.
Like other bearish traders, he strictly follows bearish trends.
He avoids high volatile markets like the crypto market, especially not without considering the market outlook, and he puts more focus on defensive stocks. He believes that the most prominent mistake investors made was predicting the direction of prices or economic events.
He also believes that stock prices are always volatile. Therefore an investor can’t have a long-term successful investment strategy because market conditions change too quickly. So Buffett’s long-term investment strategy is to buy and hold stocks with a long-term horizon and only invest in companies with a good history of success.
While you may say being bearish has helped him, it has also denied him lifetime opportunities.
He refused to buy Tesla shares in the past, citing he never liked putting his money on highly volatile tech companies.
It might have put him on a very different trajectory if he had.
Examples Of Bullish Investors
George Soros is considered one of the most famous bullish investors globally.
Having carried out bullish long-term trading for a long time, he developed a successful investment strategy. However, he is usually more aggressive than other investors, making people call him irresponsible.
He has always had some investor sentiment.
Soros was known for betting against the British pound in 1992 during the economic crisis. And he made a lot of money by doing so.
After his success, his trading was forbidden by the British government. And he moved to New York by illegally creating a hedge fund. Finally, the US tax authority gave him a non-prosecution agreement in 1999 and let him start his hedge fund. The fund, named Soros Fund Management, made a profit of 1 billion dollars in its first year and eventually became one of the most significant hedge funds in the world.
What Are Bulls, Bears, And Whales In Stock Markets?
Bulls, bears, and whales are a big part of the financial world. They sometimes appear in financial journals, newspapers, or on the Internet. So it’s essential you know what they mean. Bulls and bears are discussed above.
But What About Whales?
A “Whale” is a term that refers to people who hold large amounts of capital in their investment portfolios. As a result, whales are often considered a group that influences the market trends of stocks.
How To Create Bullish Or Bearish Forecasts
The stock market is often characterized by price action where there is simultaneous price increase and decrease, making it hard to forecast.
To create bullish or bearish forecasts, you need to combine technical analysis with fundamental analysis, then apply it in your trading method.
You can use rising or falling trend lines to produce a bullish forecast. To do this, you will need to determine the stock market’s direction by following its price movements using different technical analysis tools.
1. Moving Averages
Moving averages or trend lines are used in technical analysis to help understand price trends and market directions.
They are made by comparing a stock’s closing prices with its average prices over a set period.
Primarily, moving averages are used to determine the direction of stock market prices. For example, if the price of a stock is going higher than its moving average, it means that it’s in an uptrend. So when you’re trying to determine whether a market is trending up or down, you can use moving average to help you decide.
You can also use what is called the moving average convergence divergence. It shows two indicators that help you predict whether the stock is trending up or down.
2. Relative Strength Indicator
It is one of the most basic technical analysis tools for creating bullish or bearish predictions. It compares the stock’s past price movements with its current price.
3. Bar Charts
Investors commonly use bar charts in technical analysis to understand trends and signals. The vertical axis of a bar chart refers to the highs and lows of the stock price. And the horizontal axis shows timeframes like one month, three months, six months, or one year.
4. Component Analysis
Investors also use the components of a stock’s price movement to draw conclusions about its future direction.
Five components make up stock’s price:
- The high prices of stock.
- The low and closing prices of stock.
- Its daily trading volume.
- Its average true range which measures the distance between the two closing prices.
- Its price momentum is the amount by which its price has risen in the last X days.
5. Support And Resistance Level
You have to look for support and resistance levels when you follow trends. Traders use support and resistance levels to determine a stock market trend. Most people don’t think about these levels, but it plays an essential role in forecasting.
Resistance is used as a support level, and if prices break through this level, it indicates that investors are buying shares. Conversely, you can also see resistance level as a level where investors will sell shares if the price goes below them.
This technical analysis tool is one of many ways investors use to predict future movements in stock prices.
The most common oscillators are:
- The Relative Strength Index.
- The Commodity Channel Index.
- The Moving Average Convergence Divergence.
Determining What Stocks To Buy And Sell Based On Their Price Movements
Now that you know how to determine the overall price movement of a stock market, you’ll learn what you need to look at so you can make trading decisions. So let’s start from the beginning.
You don’t have to look at all stocks, just a few good ones.
How To Determine Price Trends Of Stocks Using Moving Averages And Bar Charts
As stock traders, we need to examine the price trends of stocks before purchasing.
You can use moving averages and bar charts to predict a quick reversal in the market or trend. For example, a 10-period exponential moving average can help you identify the market or trend direction.
Compute the moving average by adding up all of the prices and dividing the sum by 10. If the price is above its moving average, it means that it’s in an upward trend.
When you’re trying to determine whether a market is trending up or down, you can use moving average to help you decide.
You can also use the moving average convergence divergence tool. This tool shows two indicators that help you predict whether a stock is trending up or down.
You can use a moving average as support and resistance levels as well. For example, if the price of a stock is going higher than its moving average, it means that it’s in an uptrend.
What Is Stock Shorting?
Stock shorting is simply betting on a stock’s price to go down.
When you short a stock, the number of shares you have borrowed from your broker will be deducted by the same amount of shares you’ve sold. It is called short covering. Short covering occurs if you go long because some investors will have sold the stocks they borrowed from their brokers to buy stocks in the market.
For example, when you’re thinking of a conventional casual investor, you might be confused with the different market options. One solution is to decide on which stock price movement tools you need to use based on your goals for each investment decision.
When Is The Best Time To Short A Stock?
A short seller borrows money from a lender to sell an asset and get money in return. He can sell his stock before it reaches the target price or take possession of it if the price drops below his target. In both cases, he will be paid for his stock after letting it stay for a specified period in his possession. Short selling is risky.
Short selling can be considered to be a bearish market move. Investors prefer to use shorting strategies because stocks with solid fundamentals will likely outperform a stock that is shorted. In addition, short selling helps you know when the market is going down, which means you can make good profits if you know when this happens.
In conclusion, I hope our analysis of bullish vs. bearish trends has helped you understand the difference between these two terms. Understanding the differences between these two types of market movements will help you better understand future price action.