Before a trader starts to look for a trading opportunity, he or she must first determine the overall or direct trend of the market. Knowing what is the difference between a bear and a bull market will help traders increase their win/loss ratios and by extension their profitability. What follows are descriptions of the characteristics of bullish and bearish markets.
In a bull market, prices are consistently on the rise, on the back of trader enthusiasm and continuous buying. As a result, prices show no sign of turning around in the short-term. On the other hand, a bear market is one in which there has been a sustained fall in prices, and there is no sign the market will change direction in the near future.
There are quite a few characteristics in bulls and bears, which may explain why these animals are used to represent rising and falling markets. Besides the fact that bears usually attack by grabbing and pulling down their prey and bulls attack by dropping their heads and raking up, the market conditions that they represent can also be seen in the silhouette that is formed by their backs.
The backs of bears gentle slope upward and then fall off from the shoulders onwards. The reverse can be seen in the silhouette of bulls. The bull has a flat back, and a sudden rise from the shoulders onward to the head. Are these striking metaphors for rising and falling markets?