A Bull Market describes any financial market that is seeing an upward trend in value. Generally, each asset, whether gold, or a currency pair such as the EUR/USD, will be increasing noticeably in value over a period of time.
A Bear Market is the exact opposite where prices and vales are on a downward trend over a period a time.
These two common phrases came to be known as such due to the way in which each referenced animal behaves when targeting prey or defending itself. A Bull will lower its head before then bucking upwards to attack with its horns whereas a Bear will stand on its hind legs and ‘bear’ down with its two front paws. Quite simple in practise and you will come to learn that animal references are quite common when talking about the behaviour of financial markets.
What Are The Causes?
Bull and Bear markets can be brought about by a number of different factors. The most common is the market influence brought about by global news events concerning various countries and their economies or by both natural and man-made disasters.
A recent example of a Bear market would be the June 2016 referendum held in the United Kingdom where it was decided that the UK would be leaving the European Union. It was widely considered that this would have a damaging effect on the UK’s economy as well as a knock-on effect of weakening the Euro and so capital left the Pound Sterling and flowed into safe haven currencies such as the Swiss Franc (CHF) and Japanese Yen (JPY). The value of stock markets globally also decreased considerably following the immediate aftermath of the referendum. Commodities such as gold and silver saw a boost as confidence dropped and investors and traders began to hedge their investments.
In November 2016, the election of Donald Trump as the President of the United States of America saw a Bull market emerge as it was considered that he would be able to deliver on his pre-election promises of large scale job creation and the lowering of taxes across the country. The New York Stock Exchange saw large increases in value as capital poured into buying stocks and shares listed within the Dow Jones and S&P 500. The Australian Dollar (AUD) and Canadian Dollar (CAD) also saw increases whilst the CHF and JPY saw decreases.
How Does This Affect You?
Trading Forex during such periods of volatility and the emergence of strong trends can be both dangerous and lucrative. If you are able to take advantage of a trend, then you may be able to gain a large number of pips as the value of one currency falls against another. If coordinated properly, you may even be able to take advantage of the increase in value of one currency and the decrease in value of another by trading correlated currency pairs. On the other hand, if you fail to assess or notice the emergence, strength and direction of a trend, you can end up betting against it and watching your trade head towards it’s stop loss quicker than you would usually expect.
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