Bear Markets appear when prices are in a decline for a period of time. Markets are dynamic and security prices often go from downtrends to uptrends and to ranges. Each market condition can be traded using different indicators and strategies, therefore spotting the bear market while it’s still forming can be beneficial for your results.
Bear Market definition
Bear Market is a market condition where prices are going down or are expected to keep declining. Instead of Bear, some traders might call Bearish or Downtrend conditions and they essentially mean the same. Although Bearish is a milder form.
Why is understanding the Bear Market important for traders?
- Understanding the bear market can help determine the trading direction.
- Bear Market can give you many trading opportunities as well as trading related risks.
- Learning about Bear Markets can help you better prepare for both scenarios: whether to join the trend or trade against the market.
Thorough Bear Market Explanation
Bear Markets take place when prices are in a decline for a period of time. In Stock trading security prices can drop as low as zero. But for currency pairs, the reality is different. Forex base currencies are measured in relation to their quote currencies. And currencies are backed by their governments, central banks and nations. As a result, Forex markets have more cyclical nature than other asset classes. But bear markets still occur in Forex and quite often.
To trade the Bear Markets, the first question you should ask yourself is direction. Trading against the trend i.e. putting buy orders in place when the market is Bearish is very risky and most novice traders avoid it. It’s safer to trade in the market direction.
Traders that trade against the trend are using techniques and indicators to spot trend reversal opportunities and benefit from joining it early.
Keep in mind that markets have multiple dimensions. And a Bear Market in a 1-hour time frame might be a Bull Market on a 1 day timeframe.
Example of Bear Market in Forex
While it’s true that Forex markets have more cyclical nature than other markets, Forex pairs have seen prolonged periods of Bearish conditions too. For instance: Kenyan Shilling started steady decline against the US Dollar July 2021 and kept the pace for months. Gradual and steady markets can provide great trading opportunities and clear Stop Loss targets. However, similar patterns are hard to find.
FAQs on Bear Market in Trading
What is causing the bear market?
Bear market takes place when prices go down. Bear market is caused by active selling. It’s safer to trade with the market for novice traders and not go against the market sentiment.
How do you survive a bear market?
In Forex you can trade both directions. No matter if the market is going up or downtrending, you can still make money in the bear market by going short.