Being bullish vs bearish on a stock is an important distinction when your money is involved. Whether you are one or the other is a matter of market sentiment. What goes up must come down, and visa versa. Bullish and Bearish are the essence of the market. The driving forces of the markets. Do you know how to profit in bull and bear markets? Learning to capitalize in both markets can help you become a more diverse trader.
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Bullish means that the market is moving in an uptrend or has short-term price movement up. Bearish means the market is in a downtrend or short-term price movement. The stock market is a battle between the bulls (long buyers) and the bears (short sellers), hence the phrase bullish vs bearish. The trading foundation is built by investors, hedge funds, banks, and traders who are either bullish or bearish. The fight between buyers and sellers forms candlesticks, patterns, support, and resistance.
A lot of traders and investors look at sentiment. One example is the AAII bullish or bearish surveys that go out.
Which is Better?
Many people have opinions regarding bull and bear markets. Most investors and traders see a bull market as better than a bear market. That’s normal. Many traders and investors only know how to buy and sell stocks. Buy low, sell high.
They don’t always know technical analysis or how to short stocks. Or even how to buy puts or sell spreads. It could be something they are afraid of doing!
Your goal is for the market to continue increasing so your investment portfolios do well. No one wants to sign into their Vanguard retirement account and see a loss. Hence, the media, investors, and the general public generally perceive bear markets as bad!
However, the ebb and flow of the bull vs bear is essential to a healthy stock market. While it may not seem like it, especially during a sell-off, we need those corrections to keep us honest. Just make sure you have the right plan and protection for your investments.
It’s sort of like playing football. Offenses run both passing and running plays. They do those to keep a defense honest. If they only ever passed or only ever ran, the defense would always be able to stop them.
However, you keep the defense second-guessing when you can fake the handoff, get the defense to bite, and then complete a long pass.
This is not the current level but a snapshot of the fear and greed index indicator, showing extreme greed.
It’s very important to define what constitutes a bullish vs bearish market. That way, you can learn which strategies work best within each, respectively. You have to build a playbook if you are a trader or investor.
Bullish Markets
Now that we’ve established that the bullish vs. bearish battle is extremely important to a healthy functioning stock market, let’s talk about the bulls. The bulls are the buyers of the market. Always there to buy the dip, average into a position, or “catch the knife.”
They have a plan, and many plan to buy low, sell high, and trade the trend. They know that over time, stocks move up (good stocks anyway), and with a proper plan…they are walking away with profit.
When buyers outweigh the sellers, they drive prices higher. In a bull market, stocks continuously rise. As a result, prices are more expensive, and PE ratios get out of whack. This means buying large-cap stocks can be more difficult with small brokerage accounts. That being said, bull markets are great for retirement portfolios. Naturally, bullish trends are great to trade because of the ability to go long. It’s simple to go long, whereas going short (being a bear or bearish) is a lot more challenging.
This is the AAII bearish investor sentiment survey. I often check stockcharts.com for this report throughout the month to know what investors feel about the overall market. You can also check AAII Bull to see what the bulls feel at any given time.
Another example some traders will look at is CNN’s custom fear and greed index.
Bullish vs Bearish Example
This is an example of bullish and bearish channels on a weekly chart of $AAPL. The current pattern is a megaphone pattern.
Going Long
Going long doesn’t mean holding long-term. It’s taking the bullish play on a stock. You can day trade or swing trade a long play. Knowing which one is the best depends on your skill set.
When a bull market is in full swing, sentiments are optimistic. People are excited about the market. Maybe earnings are going up. Job numbers are good. GDP is good. Politically, things are good, and so on.
They can last for years at a time. We are in the middle of one of the longest bull runs in history. That doesn’t mean that stock prices never have down days. The trick is buying at support and selling at resistance. Sounds easy, right? Read on…
Thankfully, the bullish vs bearish battle happens no matter what trend. Corrections allow the market and stocks to find equilibrium. As a result, the tug of war is never-ending. There is always a “best entry” for your trade plan. Chasing an entry and being impatient tends not to work out so well.
Role of the Bears
The bears can seem scary in the bullish vs bearish fight. That’s only because you see a lot of red in that trend. The panic selling can be scary if you are long or are looking to buy the dip.
A bear market is in place once the market has sold off at least 20% in a couple of months. People often don’t know a bear market happens until it’s over. They don’t realize what is happening. Either because they are not following the charts or because economic data tends to “lag.
Speculators and talking heads will be talking about a bear market months before it starts, sometimes years. Guess what? Eventually, they’ll be right, but how long will they be wrong?
Prices fall because pessimism is in full control. A lot of investors don’t like to look at their portfolios. However, they can also see this is a sale to load up on more shares of their favorite value stock.
The important thing is only to buy once a bottom has been formed.
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Patience Is a Virtue
Being impatient and not waiting for an entry confirmation results in an entry that could be a loss as prices continue to fall. This is why support and resistance is so important. No matter what the market is doing, the bullish vs bearish battle must still adhere to support and resistance.
There are bullish vs bearish candlesticks as well as patterns. Candlesticks by themselves tell a story. However, when you group them, they form patterns. These patterns are categorized into continuation patterns or reversal patterns. There’s no magic formula that’s going to tell you exactly what a stock is going to do. However, patterns can give you a good idea.
Patterns form within patterns, so there are times when patterns break down and don’t always do what you expected them to do. Hence, spotting the large and small patterns to plan your entry is important.
Candlesticks and patterns also form support and resistance. These levels are probably the most important thing to pay attention to in trading bullish vs. bearish strategies because they are your first defense when trading or investing.
Seeing the bullish vs. bearish candlesticks and patterns helps you know which trading strategy would work best in any situation.
Do You Buy Bearish or Bullish?
When going long a stock, you are bullish. Shorting a stock means that you’re bearish. If you buy a call when trading options, then you are bullish. Buying a put means that you are bearish on the stock.
Bullish vs Bearish Strategies
As we have said, bullish vs bearish markets have different strategies. Buying in a bull market is pretty obvious and straightforward. The bear market can trip people up because you can make money as prices are falling; you can also lose if you short a stock and the price goes up (forcing you to “cover your loss”). More on that below.
Yes, short selling allows you to profit from falling prices. You can short-sell even in bull markets because of the tug-of war-between the bull vs. bear.
When you believe a stock’s price will fall, you borrow shares from your broker and sell them short on the open market. You cover once your profit target has been hit (the stock moves lower). Covering is known as buying those shares back. You keep the difference. That’s how you profit.
The shares revert to your broker, and you get to keep the difference in price from where you sold to where you covered. You can use this strategy without ever having to own shares of a stock.
Options trading is another great strategy to employ in any market. The simple and advanced strategies let you make money no matter what the market is doing. Up, down, or sideways, there’s a strategy you can use to turn a profit.
Final Thoughts: Bullish vs Bearish
The bullish vs bearish battle will never change. As long as you learn the strategies to make money, no matter who’s in control, you’ll be able to make a profit no matter what the market is doing.
When you first get started as a trader, it’s important to pick one trading strategy and master it. Then, as you become comfortable and master that specific strategy, start learning and implementing another one. Otherwise, you could be sitting on your hands, not making money because you only know one trading strategy. I don’t know about you, but that sounds boring!
For instance, if you desire to swing trade, you ideally want to find a trending market. If you only trade shares in a bullish market, what will you do when the market goes bearish or trades sideways? This is where options come in and all the different strategies that come with it. Iron condors are great options and strategies when the market trades sideways.
Or how about penny stocks? Sometimes, options might not have great setups, but penny stocks run for a few days. If you know how to make intraday scalps, you can make money trading them while waiting for the large caps to turn around.
The more diverse that you become as a trader, the better. Please don’t rush the process to become a successful trader. Take it slow if you’re new, and make sure to paper trade for several months before trading with real money. Then, slowly scale your way up with real money while starting with small positions.
