Bullish, Bearish, and Trends: Understanding the Most Common Terms in the Financial Markets

　　

Being a new trader can be quite overwhelming, especially with all the technical terms that you’re not familiar with. But if you are going to be successful at trading, it’s crucial that you learn all these terms to understand the financial markets better. Three of the most common terms that you would come across are bullish, bearish, and trends. 

Let’s take a closer look at each of them:

Bullish

The term “bullish” was first used to refer to someone grabbing a stock hoping it would increase in value. Also referred to as speculative purchases, bullish eventually became the person making the investment. When you talk about a bull market, it means that prices, especially those of equities, are generally going up.

So, if you are a bullish investor, you are making an investment based on the belief that one or more of your securities will rise. Some investors even believe that the market will go up as a whole, so they make decisions that will hopefully give them good gains. The term “bullish” was inspired by the behavior of a bull that always takes things by the horn.

Bearish

The opposite of bullish, a bearish market means that there is a downward trend in the prices of securities for some time. You can’t call a market bearish if it’s only a short-term dip with a low decline. A bear market only happens when prices decline by up to 20% for a time.

So, when you talk about a bearish investor, it means that the individual only makes investments when the market or specific stocks are going down. This type of investor believes that there will be a market-wide dip in securities. The “bearish” term is inspired by the behavior of a bear attacking with its claws using a downward movement.

Recognizing Trends in Financial Markets

There are trends we often read in analytical reports issued by professionals. Or, there are those we hear on shows about financial markets.

In language, a trend can be interpreted as a price trend. This means that prices tend to move to one side only in a trend. However, keep in mind that price movements in a trend are not in the form of a straight diagonal line in one direction because the market usually moves in the form of a series of zigzags.

This zigzag movement forms a series of successive waves with peak levels (High/H), higher peaks (Higher High/HH), Valleys (Low/L), and higher valleys (Higher Low/HL), which are quite clear. The direction of the High and Low will determine a market trend that is currently happening. The High and Low move up, down, or sideways, and the direction of this movement will later tell traders about market trends.

3 Types of Trends in Financial Markets

• Uptrend

An uptrend, also known as the Bullish phase, means that the price tends to move up in the past few periods. A stock or index can be categorized as experiencing an uptrend/bullish phase when Higher High (HH) and Higher Low (HL) are formed.

• Downtrend

A downtrend, also known as the Bearish phase, means that the price tends to move down in the past few periods. A stock or index can be categorized as being in a downtrend/bearish phase when Lower High (LH) and Lower Low (LL) are formed or some say when Lower Peak (LP) and Lower Troughs (LT) are formed.

• Sideways

In a sideways market, asset price movements can be said to be neither up nor down, or in other words, it moves sideways (flat). In this case, the price trend is flat, and there is no certainty whether it will go up or down (HH, HL, LH, or LL are not formed). Some investors tend to take a wait-and-see action because market conditions are not clear enough. 

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