If you want to get started in the world of binary options, you must learn some points to support your trading techniques in a better way. Binary options trading has a dual nature, meaning that the trades will end up with the market either in high point or low.
Using binary options is easy, but several underlying concepts are necessary to get a better experience of the exciting trading world.
One of these concepts is the – Bullish and Bearish Market Trends. It is essential to differentiate between these two market outcomes.
The ‘bull’ and ‘bear’ jargon are being used in the market ever since. These terms came from the fact that how the bulls and bears fight against enemies and their actions are used metaphorically for the market.
Bulls are said to attack with their horns by pushing the opponent in the air, and on the other hand, bears pin their enemies down. In the financial industry, these terms are used for the investors as well.
What is a trend?
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The trend is the direction in which the financial market flows. There are two types of trends. They are as follows:
A bullish trend is when the market goes in an upward direction. If the price of the assets rises for a certain period, it indicates the recovery and soundness of an economy timed with a high level of employment.
The bull trader’s judges that the market will go up. This market is symbolized by a constant increase in prices and is called a bull market.
When a market is going in a downward direction, it is called a bearish trend. In this trend, the economy declines, and the value of assets drops.
When the prices are falling continuously, and the financial system is down, it is called a bearish market. Bear is used for the investor who believes that the price of an asset will go down.
Understanding the bull market
Bull markets are based on the optimistic thoughts and confidence of the investor that the market will give positive results. There is no system of measurement to detect the bull market, but it is believed that it is a situation in which the asset’s prices grow by 20%, usually after a fall of 20% and before a second 20% decline.
Because it is practically difficult to identify the bullish trend, investors analyze this after its occurrence only.
- The bull market arises when the economy is strong and moving forward.
- They result in high employment rates and take place with GDP.
- The overall demand for financial assets will upsurge.
Understanding the bear market
The bear market is denoted by the fall in asset value. It is believed that the bear market arises when the prices are dropped 20% or more in the last two months.
The investor’s guts play an important role as well. If they think something is about to happen, they will close their asset’s position to avoid losses. These markets can last up to weeks or even years.
Phases of bear market
- The first phase is when the prices and trader’s response is high.
- At the end of phase one, traders start to close their market position to gain profit.
- With the prices taking a downward course, the second phase starts. This phase is also known as capitulation, which means that traders’ sentiments begin to wear off.
- In the third phase, the risk-takers make their way to the market to raise some value and prices.
- The fourth and last phase shows that the prices start to drop slowly, and the market begins to fascinate other traders leading the bear market to turn into a bull market again.
Bull v/s bear market
A bull market exists when the value of assets is on the rise, and on the contrary, a bear market is when the assets are dropping in value. These terms indicate what the traders think about the prices of the assets.
When the traders are bullish about an asset, they believe that the market will go uptrend. For example, when the investor says that he is bullish about crude oil, he believes that crude oil prices will rise.
And when they are bearish about an asset, they think that the prices will fall. A bear investor will say that he is bearish about the Apple stock, meaning that according to him, the price of that stock will go down.
There is no specific point at which the market is said to be bullish. However, a market becomes bearish when the price of an asset falls at least 20% for a certain period of time.
In some cases, it is possible to see a bullish market without any economic growth and a bearish market without any recession. Also, a bull market may immediately follow a bear market, which can be said the other way around.
Can a trader be both bullish and bearish?
The answer would be affirmative. One investor can be both at the same time. As a trader, you can be bearish on one asset and bullish on the other. You might believe that the Google stock is bullish and the gold is bearish.
The key is to find a binary broker who lets you trade in more than one asset simultaneously.
Characteristics of bull and bear market
The flow of the market indicates whether the market is bull or bear. However, there are some other characteristics as well-
Change in the financial system or economy
The economy and the markets are interconnected. Major wave-shock in one will eventually affect the other because the corporations, business firms, and the companies whose assets are present to trade play a huge role in the economy.
In a bull market- the profit is huge, and people are willing to pay more, leading directly to the building of the economy.
In a bearish market- the profit is low, and the spending is less, which ultimately declines the value and economy altogether.
The supply and demand
It is necessary to pinpoint the areas because they give an opportunity to win a payout, although the risks are always there.
The price tends to fall when the supply is more than the demand, and in the opposite scenario, where the demand is more than the supply, the prices rise.
In a bearish market, the supply is more because more traders are selling their financial assets leading to a decline in market value.
In a bullish market, the demand is high as compared to the supply. More traders are interested in buying the assets instead of selling them, leading to an uprise of market value.
The mindset of the trader
An investor’s way of thinking is also the main factor. Human behavior influences the way the market works. Their beliefs affect the market performance and decide whether the market will go high or low.
In the bear market, investors are eager and optimistic to buy the assets to gain profit. While in the bear market, the traders are pessimistic and start to sell the assets hoping for a more progressive movement in the market.
What does it mean to be bearish in Binary Options?
A bear believes that the market is about to take a downward trajectory. The value of the assets, financial instruments with the market all along will drop. It is the opposite of a bullish market where the market faces an uptrend.
Being bearish means identifying when the bear pressure on the financial market will outstrip the bull market. Noticing this change is a key factor to hold profits and limit the losses.
The bear traders judge that the market value will soon face a decline and try to make a profit from it.
Does bearish means sell in Binary Options?
As stated, a bear investor believes that the market will go down shortly. A bear market is indicated by a 20% or more fall in the price of an asset in at least two months’ time period. This trend can remain for some days, weeks, or even years.
The traders who are bearish in nature will sell those assets that they are holding on to, thereby borrowing shares from their brokers and then selling them in the market to get them back at low rates after the prices fall.
In the hope of getting the assets cheaper, the investors start selling them off, which eventually results in the reduction of prices itself.
How to take a bearish position in Binary Options?
The best way to take a bearish position is the trick of short selling. It is that trading in which the traders get profit if the assets lose their value and drop in price.
The probability of you losing your investment is much higher in the bear market. On point, prediction is hard because the value of the asset is continuously dropping. It is very likely that you meet losses before getting any positive result.
Therefore, many investors believe in short selling and safer investments. Also, go with those assets that have a minimal impact from market changing.
What to do in bull market?
If the market is bullish, you can take the benefit from the rising prices of the assets and make a trade early in the uptrend. Later, when the prices start to go down, you can close your positions.
The loss in a bull market is said to be less and for a temporary period.
How to take advantage of bull market?
To take benefit from the bull market, there are some strategies that will help you in the long run.
- Buy the Asset and Hold on to it
It is a very common strategy where you buy an asset and then keeps holding onto it only to sell it in the future. The key to this plan is to have faith and confidence that the price will rise. If you are optimistic in this regard, you can try this tactic.
Another variation is the increased buy and hold option but involves additional risks. In this, the trader will add more assets to his possession and hold them as long as the price increase.
- The Full Swing Trading
Full swing trading is one of the most hard-hitting methods if you want to take advantage of the bull market. In this process, investors use short selling and other methods to get the maximum profits from the shifts occurring in the bull’s market.
Retracement is a technique to analyze a trivial pullback causing a change in the direction of the asset. They are for a short period of time and do not reflect any major change in the trend.
In a bullish market, there are chances that the prices might drop even though they would occur only for a short and temporary period; many investors look out for the retracements to make their trade.
How can I trade in bullish and bearish trend?
Making the right choice at the right time is the key to win your trades irrespective of which trend you are investing in. you can get profits in both bullish and bearish markets.
Make your investment when the market is rising, and you are bullish about an asset. Similarly, investing in the bearish market means when the assets are going down, and traders are bearish about an asset.
In both these situations, you can make a ton, but the catch is to look after some important aspects-
- Always use Technical Indicators for Better Reading
Using the technical indicators to read or analyze your price chart will give you information regarding the traders’ feelings about the market and in which direction the trend is likely to flow.
The indicators work by examining some news sheets and evaluate the negative and positive counsel while some perform a mathematical calculation. The value of the indicators changes according to the market.
- Always Remain Updated
Keep yourself updated and in touch with the markets. There are many sources from where you can get the latest information like the magazines or news. Read them to work according to the market flow.
- Learn Tips and Tricks
You are never too late to learn new things. There are plenty of ways to produce a positive result because every investor has something up their sleeve.
Gather that information from the interviews, articles, and other sources featuring an expert trader. This material will help you in reading the different market trends, including the bull and bear market.
You can get a newsletter as well. They will let you know what the other traders are suspecting. You can make your call depending on what others say about an asset in binary options.
- Connect the Dots
After doing thorough research and soaking plenty of material, you can connect the dots even after reading a piece of regular news.
For example, if a company is facing a crisis or any legal suit, the chances are that they are going bearish. If a company is reflecting their upbeat attitude, they are probably bullish.
These are some ways to learn how the other investors are feeling about a market and then make your judgment.
Best indicators for bullish and bearish market
There is an abundance of indicators that helps in judging the market flow. They are also known as oscillators. One such indicator for a bullish and bearish market is the Relative Strength Index (RSI).
RSI is a technical indicator that is used to analyze the scale of the recent price change or the number of assets bought and sold and further examine the bullish or bearish price momentum. It is a line between two extremes and can have a reading from 0 to 100.
An asset is said to be overbought when RSI hits the 70% mark and oversold when it attains 30% and is plotted beneath the price chart.
The Relative Strength Index is most reliable when the asset’s price is swapping between the bullish and bearish market.
What are bear and bull traps in the Binary Options?
Sometimes investing in bearish and bullish trends might lead to traps. This happens when a trader, expecting a change in direction, immediately executes the trade, but the breakout fails, and the market begins to flow in the opposite direction.
These are called the bull traps and bear traps indicating that the trader has fallen for the bait and is stuck in the deception.
Bear and bull traps keep happening regularly. Traders get caught in the price movement believing it would go according to their plan, only to find it moving in the opposite direction after some time.
Bull traps are when the trade is made anticipating that the price will go higher but happens otherwise.
Bear traps are the opposite case when the positions are sold, expecting the price to go down, but it changes the course and goes high.
Since getting caught in these traps is common, you need a way to deal with them. There are many options to do so-
- For the experts accustomed to it, playing the reverse card is the trick to get out of it. Leave the position you currently are in and start trading in the other direction.
- If leaving your position is not possible, you can simply dodge the whole situation. However, this involves high risks. For example, if you have selected a ‘put,’ simply buy a ‘call’ once you realize that a bear trap is going to happen. But the possibility here is that you might end up with two losses instead of just one.
- You can modify your strategies to avoid the traps. You can choose not to buy when a new high takes place or sell the breakouts to new lows. The use of strategy depends solely on you and the way you look at the scenario.
- Many traders prefer to watch for the traps and trade them instead of trading the breakouts.
- The last and the most common option is to sit back and do nothing. The chances of becoming a victim of the bull and bear traps are high, and many investors leave them the way they are.
It’s up to you how you tackle the situation and get out of it. Some of the strategies might help you overcome the traps, while some might drag you even down. So carefully analyze the market and then only make any attempt to turn the position.
Both the bearish and the bullish trends are essential in the financial industry. They both deeply affect the market flow. The binary options traders must look into every aspect of the financial system to make a better judgment.
The traders belonging to the bulls and bears category know precisely how to mold the situation in their favor not only because they are experts and familiar with the industry’s setting but because they know that the market is always profitable in the long run.
Hence, manage your trades effectively since predicting the correct outcome every time is not reasonably possible. Whether your outlook is bullish or bearish, you can limit the losses and protect your capital if your position is in control.