Being bullish vs bearish on a stock is an important distinction to make when your money is involved. Whether you are one or the other is a matter of market sentiment. What goes up must come down and visa versa. Bullish and Bearish is the essence of the market. The driving forces of the markets. Do you know how to profit in bull and bear markets? Learning how to capitalize in both markets can help you to become a more diverse trader.
Bullish means that the market is moving in an uptrend or has short term price movement up. Bearish means that the market is in a downtrend or short term price movement down. The stock market is a battle between the bulls (long buyers) and the bears (short sellers) hence the phrase bullish vs bearish. The foundation of trading is built by investors, hedge funds, banks and traders who are either bullish or bearish. The fight between buyers and sellers forms candlesticks, patterns, support and resistance.
A lot of traders and investors look at sentiment. One example is the AAII bullish or bearish surveys that go out.
This is the AAII bearish investor sentiment survey. I check stockcharts.com for this report often throughout the month to have an idea on what investors are feeling about the overall market. You can check AAII Bull too to see what the bulls are feeling at any given time too.
Another example some traders will look at CNN’s custom fear and greed index.
This is not the current level but a snap shot of the fear and greed index indicator, showing extreme greed.
Truth be told, it’s very important to be able to define what constitutes a bullish vs bearish market. That way you can learn which strategies work best within each, respectively. You have to build a playbook if you are a trader or investor.
Which is Better?
Many people have opinions regarding bull and bear markets. Most investors and traders see a bull market as something that’s better than a bear market. That’s normal. Many traders and investors only know how to buy and sell stocks. Buy low, sell high.
They don’t always know technical analysis or how to short stocks. Or even how to buy puts, or sell spreads. It could be something they are of afraid of doing!
Your goal is for the market to continue to move up so your investment portfolios do well. No one wants to sign into their Vanguard retirement account and see loss. Hence bear markets are generally perceived as a bad thing by the media, investors and the general public!
However, the ebb and flow of the bull vs bear is essential to a healthy stock market. While it may not seem like it, especially in the middle of a sell off, we need those corrections to keep us honest. Just make sure you have the right plan and protection for your investments.
It’s sort of like playing football. Offenses run both passing and running plays. They do those to keep a defense honest. If they only ever passed or only ever run the defense would always be able to stop them.
However, when you can fake the hand off, get the defense to bite and then complete a long pass you keep the defense second guessing.
In Bullish Markets What do Bulls do?
Now that we’ve established that the bullish vs bearish battle is extremely important to a healthy functioning stock market, let’s talk about the bulls. The bulls are the buyers of market. Always there to buy the dip, average into a position, or “catch the knife”.
They have a plan, and many plan to buy low and sell high and trade the trend. They know that overtime, stocks move up (good stocks anyway) and with a proper plan…they are walking away with profit.
When buyers outweigh the sellers they drive prices higher. In a bull market, stocks continuously rise. As a result, prices are more expensive and PE ratios get out of whack. Which means buying large cap stocks can be more difficult with small brokerage accounts. That being said, bull markets are great for retirement portfolios. Naturally, bullish trends are great to trade because of the ability to go long. It’s simple to go long, whereas going short (being a bear or bearish) is a lot more challenging.
Going Long
Going long doesn’t mean holding long term. It’s taking the bullish play on a stock. You can day trade or swing trade a long play. Knowing which one is the best to do, depends on your skill set.
When a bull market is in full swing that means sentiments are optimistic. People are excited about the market. Maybe earnings are going up. Job numbers are good. GDP is good. Politically, things are good, and so on.
They can last for years at a time. Currently, we are in the middle of one of the longest bull runs in history. That doesn’t mean that stock prices never have down days. The trick is buying at support and selling at resistance. Sounds easy right? Read on…
Thankfully the bullish vs bearish battle happens no matter what trend is in place. Corrections allow the market and stocks to find equilibrium. As a result, the tug of war is never ending. There is always a “best entry” for your trade plan. Chasing an entry and being impatient tends to not work out so well.
What Part Do the Bears Play?
The bears can seem scary in the bullish vs bearish fight. That’s only because you see a lot of red in that trend. The panic selling can be scary if you are long, or are looking to buy the dip.
A bear market is in place once the market has sold off at least 20% of a couple month time period. Many times people don’t know a bear market happened until it’s over. They just don’t realize what is happening. Either because they are not following the charts, or because economic data tends to “lag.
Speculators and talking heads will be talking about a bear market months before it starts, sometimes years. Guess what? Eventually they’ll be right, but how long will they be wrong for?
Prices fall because pessimism is in full control. A lot of investors don’t like to look at their portfolios. However, they can also see this is a sale to load up on more shares of their favorite value stock.
The important thing is to only buy once a bottom has been formed..
Having Patience Is a Virtue (To Your Yield)
Being impatient and not waiting for an entry confirmation results in an entry that could be a loss as prices continue to fall. This is why support and resistance is so important. No matter what the market is doing, the bullish vs bearish battle must still adhere to support and resistance.
There are bullish vs bearish candlesticks as well as patterns. Candlesticks by themselves tell a story. However, when you group them together, they form patterns. These patterns are categorized into continuation patterns or reversal patterns. There’s no magic formula that’s going to tell you exactly what a stock is going to do. However, patterns can give you a good idea.
Patterns form within patterns so there are times that patterns break down and don’t always do what you expected it to do. Hence the importance of being able to spot both the large and small patterns to plan your entry.
Candlesticks and patterns also form support and resistance. These levels are probably the most important thing to pay attention to in trading bullish vs bearish strategies because they are your first line of defense when trading or investing.
In fact, being able to see the bullish vs bearish candlesticks and patterns helps you know which trading strategy would work best in any given situation.
Do You Buy Bearish or Bullish?
When going long a stock you are bullish. Shorting a stock means that you’re bearish. If you buy a call when trading options then you are bullish. Buying a put means that you are bearish on the stock.
Strategies
As we have said, bullish vs bearish markets have different strategies. Buying in a bull market is pretty obvious and straight forward. It’s the bear market that can trip people up because you can make money as prices are falling, you can also lose if you short a stock and the price goes up (forcing you to “cover your loss”). More on that below.
Yes, short selling allows you to profit of of prices falling. You can short sell even in bull markets because of the tug of war between the bull vs bear.
When you believe a stock’s price is going to fall, you borrow shares from your broker and sell them short on the open market. Once your profit target has been hit (the stock moves lower), you cover. Covering is known as buying those shares back. You keep the difference. That’s how you profit.
The shares revert back to your broker and you get to keep the difference in price form where you sold to where you covered. You can use this strategy without ever having to own shares of a stock.
Options trading is another great strategy to employ in any market. The simple and advanced strategies let you make money no matter what the market is doing. Up, down or sideways, there’s a strategy you can use to turn a profit.
Embrace the Light and the Dark Side
The bullish vs bearish battle will never change. As long as you learn the strategies to make money no matter who’s in control, you’ll be able to make a profit no matter what the market is doing.
When you first get started as a trader it’s important to pick one trading strategy and master it. Then as you become comfortable and master that specific strategy, start learning and implementing another one. Otherwise, you could be sitting on your hands not making money because you only know once trading strategy. I don’t know about you but to me that sound boring!
For instance, if you desire to swing trade then you ideally want to find a trending market. If you only trading shares in a bullish market then what are you going to do when the market goes bearish or trade sideways? This is where options comes in and all of the different strategies that come with it. Iron condors are really great options strategies to use when the market trades sideways.
Or, how about penny stocks? Sometimes options might not have great setups but penny stocks are really running for a couple of days. If you know how to make intraday scalps then you can make money trading them while you’re waiting on the large caps to turnaround.
The more diverse that you become as a trader the better. Don’t rush the process that it takes to become a successful trader. Take it slow if you’re new and make sure to paper trade for several months before trading with real money. Then slowly scale your way up with real money while starting with small positions.
