Bullish vs. bearish

Learn what bullish and bearish mean for day traders and trading the markets.

What does bullish mean?

A bullish trend is an upward trend in a particular asset. Bulls think the markets will go up. A market in a long-term uptrend is called a bull market. If a trader says, “I’m bullish on gold,” she thinks the price of gold will go up.

What does bearish mean?

A bearish trend is a downward trend in a particular asset. Bears think the market will go down. A market in a long-term downtrend, with continuously falling prices, is called a bear market. For example, a trader or investor might say, “I’m bearish about crude oil going into the summer,” which means that he thinks the price of crude oil is likely to go down in the early weeks of summer.

Why is it called bullish or bearish?

The terms bullish and bearish are believed to have derived from how bulls and bears fight their enemies: a bull thrusts its horns in the air, while a bear will pull its opponent down. However, the bear came first around the 18th century, and etymologists reference a proverb “to sell the bear’s skin before one has caught the bear.” Soon after, market participants included the bull to mean a speculative purchase. Bulls and bears have remained in stock market lingo ever since.

Bullish vs. bearish meaning in the stock market

Bull vs. bear markets

A bull market, typically referencing stock indices, exists when prices are on the rise. While individual stocks can be bullish or bearish, if the price of the stock index – such as the Dow or S&P 500 – is generally rising, then it’s considered a bull market. There is no specific percentage gauge to indicate when a market is determined to be bullish. However, a bear market occurs when the price of an index falls for a period of time by at least 20%. Short-term dips of 10-20% are considered a correction. Just as with bull markets, a trader can be bearish on individual stocks and stock indices.  

In recent years, the US stock market has been a bull market: the S&P 500 index increased nearly 400%, from a low of 666 in March 2009 to highs over 3300 in early 2020. This bull market coincides with the longest economic expansion in US history. However, it’s important to distinguish between the two. It’s possible to have a bull market without economic expansion and a bear market without a recession. Other long-term bull markets include the periods of 1925-1929 and 1993-1997. The recovery that began in 2009 was preceded by a sharp bear market from 2007-2009, marked by the financial crisis brought on by the subprime mortgage crisis and the overleveraging of debt-based derivatives like credit default swaps. Sometimes bull markets can be followed by bear markets and vice versa. The tech boom of the 1990s ended with the bursting of the dot-com bubble of 2000-2001. The bull market of the 1920s ended not just with a bear market but a crash followed by the Great Depression.

Traders can be bullish on some markets and bearish on others

As a trader, you might be bullish on crude oil, bearish on the euro currency, bullish on gold, and bearish on Japan’s Nikkei 225 stock index. Because Nadex lets you trade multiple markets from one account, you can trade each of those opinions individually using binary options and spreads. You can also be bullish long-term but bearish in the short term. For example, you may have a long-term investment in index funds because you believe the stock market will go up over the next decade. However, you may also think the market will take a dip, a short-term correction over the next few weeks or months. You can use Nadex Binary Options, Knock-Outs, and Call Spreads to effectively hedge against that short-term dip in your stock index portfolio. By selling these types of contracts, you can try to profit from the price drops. Those profits could potentially offset the losses in your long-term investments. Open a Nadex demo account and practice trading on bullish and bearish markets without any risk to your capital.

FAQs

What is a bullish stock?

A bullish stock is a stock that’s rising in price. So, if a financial news show reports that most analysts in a survey think we’re headed for a “bull market” in stocks, it means that those analysts believe that stocks will begin an extended uptrend, with prices rising consistently for a while. As a trader, you may agree with this sentiment and become bullish on stocks with the anticipation of a specific company’s shares rising or a stock index going up.

What is a bearish stock?

A bearish stock is a stock that’s declining in price. So, if a financial news show reports that most analysts in a survey think we’re headed for a “bear market” in stocks, it means that those analysts believe that stocks will begin an extended downtrend, with prices falling consistently for a while. As a trader, you may agree with this sentiment and become bearish on stocks with the anticipation of a specific company’s shares dropping or a stock index declining.

Is it better to be bullish or bearish?

Whether it’s better to be bullish or bearish depends on your market outlook and whether your view proves to be correct or not. Predicting the direction of a market can be difficult, of course, but that doesn’t mean you shouldn’t take a position. By managing your risk effectively, you’ll be able to protect your capital and minimize your losses irrespective of whether your outlook is bullish or bearish.