Trading is delicate and there is a lot of insight needed in order to succeed. The world of business is full of signals but it is not straightforward. The forex market is particularly not as simple as most would assume. There are many different market forces at play at any given time and this makes it a difficult place for businesspeople. Regardless, there are many forex traders who make it in the market because they have mastered the art of identifying market signals. Such traders are able to get something out of the market regardless of the prevailing economic situation.
One phrase that is synonymous with the trade is the phrase “Bulls and Bears”. This simple phrase has a lot of meaning to shrewd traders as they are always on the lookout for bullish and bearish signals in the forex market. In case you are not familiar with these terms, the bearish market is one which is moving downward while a bullish market is on its way up. For proper context, a currency that is gaining a lot of traction is bullish while one that is losing is bearish. The entry and exit points are thus determined by looking at the bearish and bullish signals. This is the simple breakdown but indeed, there is much more to understanding bulls and bears in the forex market.
The effect of the economy on the forex market
While it is possible to find a bulls and bears indicator to help you in your trade, you also need to understand the mechanisms behind the conditions of the forex market. The general economy has great effects on foreign currency exchange. When an economy is doing well, you can expect to see bullish signals in the forex market. This also means that the prevailing inflation and interest rates are also favorable. The effects of an economy that is doing well are many. Low unemployment rates, investor confidence, and increased business activity all define the bullish economy. The opposite is also true for a bearish economy.
When do traders make money?
Sometimes, the assumption is that traders make money only when the economy of a particular nation is doing well. This is not the case though. Traders can make money either by following the bull or bears. The most important issue for a trader is to familiarize themselves with the currency pairs that they want to trade. Knowing a little history of the particular currency as well as its characteristics can allow for a profitable trade. Generally, investors tend to buy a lot when the market is characterized by bullish signals. Such demand only increases the prices of currency due to the short supply created by impulsive buying.
When the market is bearish on the other hand, investors only focus on investments that have fixed returns, for instance – bonds. This situation has effects on the market where there is a general low demand on the currency. The low demand on local currency means that its price has to further down so as to attract buyers. Even though the price of the currency might rise temporarily, the general downward trend sustains.
While it is possible for traders to make money when the market is in a bearish state, the best scenario is when there is a lot of activity going on. In most cases, the bearish market has more activity going on than the bullish market. It is also much easier to predict the trend of a bullish market since an upward trend will always sustain even though a few breaks might come in between. The only issue that a trader should be concerned about is identifying the maximum point that the market will ultimately reach as it cannot continue going upwards forever.
Making profits in a bearish market
Since the market is on a downward trend during a bear phase, the opportunities that exist here are making bargains for the lowly priced currency. Just like the bullish market, the bearish market can only go downwards for too long before an upward trend begins. A shrewd trader should thus predict the turning point at which the market will begin to go upwards again. Sometimes, a short-term loss can be made before the market reaches its lowest point. Buying low, however, is always the best investment move as the prices are cheap.