To an average individual, the word means Bull means a male cow and the word Bear means a wild omnivorous animal. However, in terms of finance, especially the financial market, they mean a totally different thing.
When I first started Forex Trading, I always wonder what the word Bull and Bear means. I came to understand about it after a long time trading, but to aspiring Forex Trader and even newbies, this poses a big challenge and might make Forex Trading seem difficult.
What Does Bull Means?
Let us first define what Bull means. Bull signifies when price of a currency pair is rising up. When the base currency is gaining value in price than the quote currency, it causes a candlestick to change it pattern and colour. Just like the example below, the closing price becomes greater than the opening price. Which shows that the value of the base currency is rising and the default colour for this candlestick is green or white colour inside the candlestick.
When more than one candlestick whose closing price becomes greater than the opening price is form, we call it a BULLISH MARKET or an UPTREND. I will explain it later in this article, please continue reading.
What Does Bear Means?
Since we have understood what Bull means, understanding what Bear means will not be difficult. Bear is the opposite of Bull; Bear shows that a currency pair is losing its value. Unlike in Bull where closing price becomes greater than the opening price, in a Bear market the candlestick the opening price is greater than the closing price and the colour is denoted as red or black– just the reverse of the bull.
Check the picture below for an example of a bear candlestick
Since we have understood a bit about Bull, Bear, Bullish Market and Bearish Market. Let us look at the history on how this terminology became widely used in the forex market.
History of Bull and Bear.
No one knows for sure the origin of the words; some consider it to be derived from how both animals (Bulls and Bears) attack their opponent.
For example, a Bull will thrust its horn from the ground up into the air. While a Bear will attack, swiping downward or it may be from how both animals fought each other.
Another possible belief may be from the historical middlemen in the sale of Bearskins. These middlemen would sell skins they had yet to receive. As such, they would speculate on the future purchase price of these skins from the trappers, hoping they would drop. The trappers would profit from a spread. These middlemen became known as “Bears,” short for Bearskin jobbers.
Who are the Bulls and Bears in The Forex Market?
The Bulls and Bears are not animals when speaking in the exchange floor but individuals with difference perception about the market price direction.
The price of a currency will fall when there are many sellers and it will also rise up when there are many buyers.
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The Bulls are technically traders who Ask for the price to go up
The Bears are technically traders who Bid for the price to go down
One can be Bullish on a pair if he or she has an open buy position on a currency pair and Bearish if there a sell position is open.
In summary, we have seen who the bears are and who are the bulls and the impact they directly have on the forex market. Sometime we interchange long for bullish and short for bearish and we tend to say, “I am long on a pair or I am short on a pair”, they still mean the same thing.
I would love to hear from you on your thought about the bulls and bear, please comment below.