Understanding common trading terms such as bullish and bearish is paramount to analyzing stock sentiment for day traders. Both bullish and bearish can be used either to describe individual assets like a specific stock sentiment, or to refer to the market sentiment as a whole.
The term bullish is used to describe market and stock sentiment when the general prevailing opinion is that prices will experience an upward trend and rise. Traders feeling bullish can arise from an accumulation of many fundamental or technical factors, such as intraday trading volumes or from analysis of stock sentiment news.
Being bullish is not intrinsically linked to a specific timeframe; a trader could be bullish that a stock price will go up in the coming minutes, hours, days, weeks or months. However, a bull market refers to a sustained period of either expected or realized price rises, typically when the stock prices rise by 20%, however unlike a Bear Market, there is no universally accepted percentage gauge for what level a market needs to rise to qualify as a bull market. Bull markets are characterized by trader confidence that price rises can be sustained for an extended period of time. As such, bull markets are seen as times that optimistic traders will be wanting to buy stocks as they believe that they will rise in price. It should be noted that a bull market does not necessarily result in every stock price increasing, instead it refers to the main market equity indexes rising.
A bullish market sentiment can be a self-fulfilling prophecy due to the market mechanisms that affect prices. A widespread extreme bullish market sentiment will often result in price rises as demand outstrips supply when traders are unwilling to sell assets at the current price.
Being bearish when trading refers to the belief that a stock or market is going to experience a downward trajectory in terms of price, the opposite of being bullish. Bearish traders who believe that a stock or a market is due for a price decline will typically seek to profit from this through shorting. Shorting, otherwise known as short selling, is the method of trading that involves borrowing stock from a broker, selling the stock at market price, waiting for the stock to fall in price, then rebuying the stock, returning the stock to the broker and pocketing the profit in the process. This process seeks to profit from an asset dropping in price.
The term Bullish refers to an optimistic belief that the price will go up, causing an upward movement on a price chart that represents a bull striking upwards with their horns. This is in contrast to Bearish, which is used to describe the expectation that prices will fall, visually similar to a bear that attacks with its paws in a downward direction.
A trader expressing bullish attitudes is often referred to as a bull and similarly a bearish trader will be labeled as a bear. To function, a market needs a combination of both bulls and bears. If every trader was bullish in their belief that prices will go up, there would be nobody selling their stocks. Similarly, if every trader was bearish, there would be no buyers.
When a bearish market that has previously experienced a downward trend begins to move in the opposite direction and experience an upward trend, this is referred to as a bullish reversal.
The financial crisis of 2007 initiated by the subprime mortgage crisis and subsequent overleveraged debt-based derivatives did result in a sharp bear market between 2007 – 2009, which led to the S&P 500 low of 666 in March 2009. For a long period afterwards, the US stock market had primarily been a bull market with various market sentiment indicators all showcasing an upwards trajectory. From the S&P 500 low of March 2009, the index rose to a high of over 3300 in early 2020. During this period, the bull market coincided with a long period of economic expansion within the US. However, it is important to note that it is possible to have a bull market without economic growth and similarly, it is possible to have a bear market without a recession.
History is littered with successful traders who have gained notoriety for correctly implementing bullish or bearish driven trading strategies. Whilst controversial, examples of bearish traders who have profited by short selling during a market crash include:
The Hungarian chair of the Soros Fund Management cemented his reputation as a supreme currency speculator with a well-coordinated bearish trade in 1992. By taking advantage of the European Monetary System and the UK’s Exchange Rate Mechanism, Soros speculatively short sold $10 billion worth of pounds, which culminated in a currency devaluation of the pound by 15%. Soros pocketed $1.1 billion of profit in the process, but the stunt remains controversial.
At his financial peak in 1929, Livermore was worth the equivalent of $1.5 billion in today’s money. The US trader followed his own strategies driven by price patterns and volume analysis. Jesse Livermore shorted the Stock Market Crash of 1929 having been bearish about the market.
Paulson, of the Paulson & Co. hedge fund, made billions in 2007 by successfully short selling the US subprime mortgage lending market, to the detriment of numerous US homeowners. By using credit default swaps, Paulson was able to successfully bet against the subprime market, pocketing over $4 billion dollars from his bearish trading strategy.
There is no specific answer whether it is better to be bullish or bearish, it depends upon your trading strategy and whether your predictions ultimately come to fruition or not. A trader doesn’t need to be just bullish or bearish in their attitudes, either in the short term or long term. Whilst a trader might be bullish that prices will rise over the long term, but be bearish in the short term so seek to follow alternative trading strategies for the immediate time being.
By managing your risk effectively and using StockGeist.ai’s market sentiment monitoring platform as a reliable and efficient analysis tool, traders can stay ahead of the game through real-time investor sentiment analysis to minimize risk and maximize returns regardless of whether they are bullish or bearish.
Alternatively, incorporate our data into your own project with our stock news sentiment API.