Bullish VS Bearish in Forex Trading

Mastering bullish and bearish market trends means grasping the essence of forex trading. An upward or downward trend in the market can give you the option to buy, or sell, securities to gain more profit and minimize losses. But prices tend to fluctuate rapidly due to economic and geopolitical actors. When prices continue to rise, this makes investors expect more gains. This sentiment is called “bullish,” but others feel that the form of the rise is about to change, And this sentiment is referred to as “bearish.”

How to identify the main features of bearish and bullish trends? What are their trends? How to better judge the cycle of bull market and bear market? These questions will be answered for you one by one in this article.

Bullish Market Sentiment

A bullish market Sentiment means people are optimistic about rising prices, at which point people seek out investments, their risk acceptance increases, and they start buying more currencies in anticipation of future profits. The emergence and duration of this upward trend is not certain. It is affected by many factors such as politics, economy, etc., but sometimes it also occurs because of a bear market. When the price continues to fall in a bearish market, people start to change their attitudes and become optimistic. They buy currencies at low prices and sell them at higher prices. Sell, at this time, the investment volume becomes larger, the demand for money becomes larger, and the price starts to rise again, and at this time it returns to a bullish market.

A bullish market Sentiment does not mean that the actual price of the forex trading will rise or fall. In the forex market, different currencies will show different trends. When in a bullish market, the Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD), and emerging market currencies tend to rise as well, but but safe-haven currencies such as the Japanese yen and Swiss franc fall, and even Sometimes the dollar also falls in a bullish market.

Factors Driving Bullish Trends

There are many factors that affect the bullish trend. We generally judge whether it is bullish or bearish by understanding the long-term performance of the market. Small trend fluctuations can only represent short-term trends, and the main factors affecting long-term fluctuations are as follows:

Strong economic data: 

Positive economic data can drive a bullish trend because it indicates a healthy economy and increased demand for goods and services. Some examples of positive economic data include strong GDP growth, low unemployment and rising consumer confidence.

Central Bank Policy: 

Central banks can influence the bullish trend by adjusting interest rates or implementing quantitative easing. When a central bank raises interest rates, it can increase demand for a particular currency and boost investor confidence. Likewise, when a central bank conducts quantitative easing, it increases market liquidity and stimulates economic growth.

Geopolitical Stability: 

Stable political conditions may contribute to the bullish trend, as investors are more likely to feel confident investing in a particular country or region. This could lead to increased demand for the country's currency, pushing up its value.

Increased demand: 

When the demand for a currency increases, it can drive up its value and facilitate a bullish trend. Factors contributing to higher demand include higher commodity prices, strong growth in exports and higher foreign investment.

Bearish Market Sentiment

A bearish market means that people's sentiment towards the increase in the price of the currency in the market is negative. At this time, people expect the price to fall and start selling the currency pair to avoid losses. When this sell-off of currencies increases further, the demand for the currency pair decreases, and the price will continue to fall, forming a real downtrend. In a bearish market trend, people also choose to buy when the price reaches its lowest point. The duration of bearish markets is uncertain, and prolonged declines are often due to some large-scale global events, such as during the global financial crisis in 2008, many markets experienced years-long bearish trends. In other cases, however, a bearish market may simply be a temporary correction before the market reverts back to a bullish trend.

Being bearish on the market doesn't mean you can't profit from it. In a bearish market, The U.S. dollar (USD) and Japanese yen (JPY) tend to rise, because people in a bearish market think that other emerging currencies are risky, and choose more stable currencies to avoid risks.

Factors Driving Bearish Trends

The factors that affect the bearish market are mainly some political and economic factors, grasping the economic data: when a country has an economic depression, the economic data will also show a downward trend, and people will have a bearish sentiment at this time. Low GDP growth. Rising unemployment, the emergence of a state of deflation will cause investors to worry, reduce their demand for the country's currency, leading to currency depreciation.

Central Bank Policy:

Cutting interest rates or implementing quantitative easing policies are important factors affecting bearish markets. This often occurs when the country's economic situation is not optimistic, and the central bank will stimulate economic growth by lowering interest rates, but this may also lead to currency depreciation.

Geopolitical Risks:

Conflict between countries, instability in domestic politics can also lead to a bearish trend. Because when these things happen, people tend not to have confidence in the country's economy. War, terrorism, and trade wars all have a big impact.

Fiscal policy:

Government spending and tax policies also affect economic growth and inflation, which in turn affects currency value.

Foreign exchange reserves:

Foreign exchange reserves are foreign exchange assets held by the country, which can be used to stabilize the currency exchange rate. If a country's foreign exchange reserves fall, it may cause the country's currency to depreciate.

Technical Analysis in Bullish and Bearish Trends

The easiest way to judge whether a market is bullish or bearish is to judge the rise and fall of prices. A bull market in a currency pair occurs when the exchange rate of the currency pair rises as a whole and forms higher highs and lows. A bearish market occurs when rates generally fall, with lower highs and lower lows.

In addition, some investors often determine whether the currency price fluctuates excessively based on market sentiment to make profits. We can also measure market sentiment through various indicators and judge the Bullish and Bearish Trends of the market to determine the best trading time. Popular sentiment indicators include: Forex Volatility Index (FX VIX), Relative Strength Index (RSI), Moving Average (MA) Bollinger Bands, MACD.

Forex Volatility Index

The Forex Volatility Index is an important indicator of foreign exchange market sentiment, which measures the expectations of future volatility among foreign exchange market participants. When the FX Volatility Index rises, it indicates that market sentiment has become jittery and investors may be more cautious.

Relative Strength Index (RSI)

RSI is a price momentum-based indicator that can be used to gauge whether a market is overbought or oversold. RSI (Relative Strength Index) can be identified by drawing a single line on a price chart that ranges from 0 to 100. The RSI line is calculated using a mathematical formula that takes into account the average gain and loss of an asset's price over a specified period of time. A period of time, usually 14 days. When the RSI is above 70, the market is considered overbought, and when the RSI is below 30, the market is considered oversold. These developments could indicate that market sentiment is changing.

Bollinger Bands

Bollinger Bands are a price volatility based indicator that can be used to measure market sentiment and volatility. Bollinger Bands can be identified on a price chart by plotting three lines. A simple moving average (SMA) in the middle, typically using a 20-day period, an upper band that is two standard deviations above the SMA and a lower band that is two standard deviations below the SMA

The upper and lower bands represent the range of normal price fluctuations, while the middle line represents the average price over the specified period. When prices move outside of the upper or lower bands, it may indicate that the market is overbought or oversold, respectively , And a potential trend reversal may be imminent. When the Bollinger Bands are contracting, it may indicate that the market sentiment is becoming more cautious, and when the Bollinger Bands are expanding, it may indicate that the market sentiment is becoming more intense.

Moving average

Moving averages can be used to gauge market trends and sentiment. For example, when the price crosses above the moving average, it could be a sign that market sentiment is becoming more positive. Investors typically use the 50-day Simple Moving Average (SMA) and 200-day Simple Moving Average (SMA) when determining market sentiment. When the 50-day moving average crosses above the 200-day moving average (known as a "golden cross"), it signals that momentum has turned to the upside, creating bullish sentiment. Conversely, when the 50-day moving average crosses below the 200-day moving average (known as a "death cross"), it signals falling prices, creating bearish sentiment.

MACD

MACD is a price trend based indicator that can be used to gauge market sentiment and trends. MACD (Moving Average Convergence Divergence) can be identified on a price chart by plotting two lines:

1.The MACD line, which is calculated by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA.

2.The Signal line, which is a 9-period EMA of the MACD line.

The MACD line oscillates above and below the zero line, indicating the relationship between the two EMAs. When the MACD line crosses the signal line, it may indicate that market sentiment is becoming more positive.

Conclusion

Whether it is a rising market or a falling market, control your emotions and not be easily swayed by the market in order to better obtain benefits. Greed, fear, over optimism and pessimism are not good choices. Only by remaining calm and rational can we better control risks and make better decisions.