Bull Markets vs. Bear Markets - An Explanation

When you are trading the financial markets you will quite often hear and read the expression "bull market" or "bear market". The "bull market" means when a financial instrument is trending in an upward manner (people are buying it). Vice versa a "bear market" means when a financial instrument is trending in a downward manner (people are selling it).


These are the most basic definitions for these two types of markets. There are different ways for detecting in which type of market you are in rather than these generalized terms. Many traders are using different types of indicators or conditions to determine a "bull" or "bear market".


One of the most common ways is to use moving averages as a representation of the overall trend. Generally when traders are using this for trend direction they will use a slower moving or higher period moving average to determine the direction. E,g, you may use a 200 day moving average to determine if the overall trend is up or down. The thinking meaning is that a slower moving average like the 200 will change direction much slower than a faster one. The trend is determined by the overall slope of the moving average. So if it is going from lower left to upper right we are in an uptrend and it works in the opposite direction as well.


Another common way is to use weekly trend lines. The higher timeframe the chart the more reliable these trend lines will become. The most reliable trend lines are the ones which show up on a weekly chart.


While it does not really matter if you call a market a "bull market" or trending upward you should know that these are phrases which are used by a majority of traders. It is simply a professional jargon. Like the rest of the professional business world the Forex world has its own language which all traders speak in order to convey information.