Over time, the stock market will move up and down following various internal and external factors. When there is positive sentiment, stock price movements will tend to be positive.
Vice versa. When there is negative sentiment, stock prices will experience pressure which then moves down. These two conditions are often referred to by market participants as bullish and bearish .
To understand the term, let’s see further discussion in this article.
Definition of Bullish and Bearish
The term bullish comes from the English word “ bull ” which means bull. A bull usually attacks the opponent by thrusting its horns upwards. So bullish in the context of stocks describes market conditions that are experiencing a strengthening and then reflected through an increase in the index.
A bull market occurs when a country’s economy is on the rise, per capita income levels are increasing, and unemployment levels are decreasing. Situations like this will be very beneficial for companies to develop their business, so that the value of shares will also be boosted.
While bearish comes from the English word ” bear ” which means bear. The term bearish is a condition when the stock price index has decreased. Called bearish because the way a bear fights usually uses claws with a movement pattern from top to bottom. This analogy represents a stock price that was originally at the top level moving down.
The bearish trend in stock prices occurred due to several factors such as slowing economic growth, a trade balance deficit, and an increasing unemployment rate. A decline in stock prices encourages market participants to take their money out of the stock market.
This is done so that they do not experience greater losses as a result of uncertain economic conditions. The heavy selling pressure eventually resulted in a bull market in which the average stock price entered the red zone and the JCI fell drastically.
Causes of the Market to Be Bullish and Bearish
There are several factors that trigger the occurrence of bulls and bear markets . Both from investor sentiment and macroeconomic conditions.
Bull markets usually occur when the economy is experiencing good growth. Other factors such as stable interest rates, low inflation rates, and low company valuations also contribute to good prospects for the stock market.
This sentiment gives investors optimism to buy up the targeted stocks. On the other hand, under these conditions, it is rare for investors to give up their share ownership. Referring to the principle of supply and demand , higher demand than supply will boost stock prices.
In contrast to a bull market , the level of pessimism in a bear market is widespread among investors for several reasons. For example, company valuations are too expensive, economic downturn or crisis, aggressive economic policies, and unexpected events such as the Covid-19 virus outbreak.
As mentioned earlier, in a situation that is quite worrying, investors tend to secure their capital by selling their shares. The high selling pressure caused the stock price to fall further.
Dealing with Bullish and Bearish Markets
Stock traders can buy stocks when the price trend is bullish with a buy on breakout strategy or when the stock price crosses a resistance level. In addition, you can also buy on the retracement or when there is a correction shortly after rising high.
For this reason, technical analysis skills are needed to be able to determine the ideal position. From there you will find support and resistance to find out breakout and retracement positions as well as candle charts that indicate trend reversals.
In case of bullish , if the purchase is made when the upward trend is already too high, then the sale using a strategy of sell on strength .But if the stock was purchased at the beginning of a trend, could wait for confirmation candlestick reversal or pairs of trailing and sell when it broke the trend. Further discussion of trading strategies during an uptrend can be read at this link .
Meanwhile , when the market is bearish , traders can still earn profits by taking advantage of the technical rebound . It’s just that expectations need to be maintained because the magnitude trend continues to show a decline. So you must be disciplined to limit risk if price movements are not in accordance with the trading plan .
Even though the price is in a downtrend, purchases can still be made with a buy on weakness strategy . Stocks are bought when the price is at the support level and is experiencing a bounce. Therefore, it is important to know the point of support- it first, so it can be ready to buy when bounced. Meanwhile, when the price touches the downtrend line , sales can be made by traders with a sell on strength strategy .
Keep in mind the cut loss risk management strategy is important to consider if the price breaks from the support area . This is done so that the loss does not deepen.
For long-term investors, the bearish trend can actually be a momentum to hunt for good stocks with cheap valuations. For this reason, long-term investors will choose stocks with fundamental analysis , including looking at financial reports so that they don’t choose the wrong stock.
This is an explanation of the terms bullish and bearish . Both are often used in market analysis, financial news, to chat in forums or communities. Regardless of the investment principles you hold, you will always meet the terms bullish and bearish . Therefore, it is important to understand its meaning.
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