Concepts such as bearish market and bullish market are the markets that we encounter especially in economy bulletins. Although it may seem confusing at first, we can see that it is frequently used after economic developments. So what is a bearish market in forex? What does it mean?
What Is a Bearish Market?
The bearish market is used for financial markets where prices are falling and the downward trend continues. Not only the forex market but also all financial markets such as stocks and bond markets are used for the downward trend of prices. We can understand that a decrease in prices is expected in the economic analysis we encounter with this.
Concepts such as the bearish market in forex are not used for very short time frames. We often find this concept being used on a scale ranging from a few days chart to an annual chart. Some circles indicate that prices must go down 20% from the previous peak to indicate that the bearish market has entered. However, this is not taken into consideration in practice.
The bearish market is generally experienced in 3 stages:
In the first stage, as a result of the profitability brought by the bull market, the divestments begin slowly. Prices slowly enter a downward trend.
The second stage is the panic stage. While the buyers are dwindling, the sellers are in a hurry, and this accelerates the fall in prices. Sellers who think they cannot sell from high, want to sell them as soon as possible and make panic sales.
In the third stage, bad news and a pessimistic atmosphere in the market dissipate. With the good news, buyers begin to emerge in the market and end the bearish season.
How Does the Bearish Market Affect Prices?
The bear metaphor in the bearish market attacks by hitting it from top to bottom with its paws. So it makes the prices go down. For this reason, the bear metaphor has been adopted.
What is a Bear Trap?
The situation called bear trap is one of the misleading appearances like a bull trap. Investors who learn concepts such as bullish market and bearish market in forex also encounter concepts that are described as a bear trap. This concept may also come across as a stock market bear trap. So what is a bear trap? How to understand the bear trap?
While the prices continue in an upward trend and the bullish market dominates the prices, the prices fall rapidly below the support line and present a misleading view to investors that the bearish market has started is called a bear trap. At the same time, it is possible to encounter a bear trap in horizontal moving trends.
In capital markets that are open to manipulation, such as the stock market and forex, large investors may make successive sales, causing prices to appear below the support point.
After this, some of the small investors who are mistaken for the start of the bearish market and try to sell their assets at high prices, make sales in a hurry.
However, after a short while, prices retreated above the support line and continue to rise in the bullish market. On the other hand, large investors who provide manipulation buy assets cheaply before the prices go up further.
We have learned what a stock market bear trap means. The bear trap is one of the situations encountered in the stock market and forex trading. Seeing an example on the graphic will provide a better understanding.
Below is an example of a bear trap. While the prices continued to rise, they experienced a rapid decline and managed to break the lower support line. Following the break of the support line, some investors want to sell their assets before prices drop further.
After the bear trap ends, prices continue to rise above the support line again and go up in the bull market. At the same time, this image is a good example of why you should not rely on support resistance lines alone.
While using technical analysis, we understand the importance of using different charting tools more clearly in situations such as bear trap and bull trap. I would say take care to take precautions against these exceptional situations.