Trading Terms Explained – From Bullish And Bearish, To Dovish And Hawkish

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Bullish and Bearish

Definition of Bullish and Bearish

Professionals in corporate finance regularly refer to markets as being bullish and bearish based on positive or negative price movements. A bear market is typically considered to exist when there has been a price decline of 20% or more from the peak, and a bull market is considered to be a 20% recovery from a market bottom.

Bullishness is a sentiment or mindset adopted by a trader Sales and Trading Career Profile The sales & trading division (S&T) of an investment bank helps mutual funds, hedge funds, pension funds, etc. facilitate equities transactions (buy/sell). A career in sales & trading can be extremely strenuous with a very fast paced environment. The competition for positions is intense, compensation can be very high, , thinking securities will move up in price. The opposite of this is bearishness, which is the sentiment that securities Marketable Securities Marketable securities are unrestricted short-term financial instruments that are issued either for equity securities or for debt securities of a publicly listed company. The issuing company creates these instruments for the express purpose of raising funds to further finance business activities and expansion. and markets are likely to move down in price.

Term Usage

When a trader says he is bullish on Apple Inc. (AAPL) shares, it means the trader thinks AAPL shares will move up in the future.

The terms bullish and bearish can also be used to describe a trend or movement that has already happened. For example, if APPL shares have made a drastic move down from $200 to $100 after an earnings call, one may say that the stock has been bearish for the week.

While the most common use of the term is in the stock market, these terms do not necessarily apply only to stocks. The terms can also be used when thinking about investments in the real estate sector, the commodity markets, and other investment arenas.

Hawkish and Dovish

When discussing changes in interest rates, people don’t generally use the term bullish. Instead, the term “hawkish” is used. When labeling a group of Central Bank officials, for example, who are inclined to raise interest rates, they are called hawkish rather than bullish. On the other end, the equivalent of bearish in regard to interest rates is dovish.

Changing views

These terms are just sentiments, and a trader can shift from bullish to bearish in the blink of an eye when they feel the market situation has significantly changed. When an economist is bullish on the general economy, it does not necessarily mean the prices of stock securities will move up.

A good example of this was the subprime mortgage crisis in 2008. Research analysts Equity Research Analyst An equity research analyst provides research coverage of public companies and distributes that research to clients. We cover analyst salary, job description, industry entry points, and possible career paths. mentioned strong bullishness, citing that the Dow Jones Industrial Average was ready to reach a record high, but instead, prices fell. Analysts maintained the bullish view until the situation was gloomy enough for them to shift to a bearish view.

Additional resources

Thank you for reading this CFI guide to bullish and bearish markets. To continuing learning and advancing your career, CFI highly recommends these additional resources:

  • Investing guide for beginners Investing: A Beginner’s Guide CFI’s Investing for Beginners guide will teach you the basics of investing and how to get started. Learn about different strategies and techniques for trading, and about the different financial markets that you can invest in.
  • Finance career map
  • What is financial modeling What is Financial Modeling Financial modeling is performed in Excel to forecast a company’s financial performance. Overview of what is financial modeling, how & why to build a model.
  • Free finance courses

The Meaning of Bearish and Bullish

The terms bullish and bearish are often used to describe the conditions in the market or the sentiment of investors. They are very important terms and are used in nearly all types of trading, from currencies to stocks. Traders can take advantage of both bullish and bearish markets if they have sufficient knowledge of the market conditions that are associated with these cycles. When traders understand the meaning of bearish and bullish and are able to identify the cycles, they will know how to profit off of any market condition.

Investors and Markets

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An investor with bearish sentiment believes that a rise in the value of asset prices presents an excellent opportunity to trade those assets and get out of the market. On the other hand, investors with bullish sentiment wait until prices are low before entering the market with the hope that prices will increase and they will then trade their stocks to make a profit. Traders can generate profits in both bearish and bullish market cycles. When a rise is suspected in the markets, bullish investors either purchase assets or hold onto long-term investments. Below is an illustration of investor sentiment.

Bullish and Bearish Behavior

Traders may also ‘short’ a stock if they believe it will decline. However, institutional hedge funds and money managers are the primary players in shorting stocks. Investors who are bullish may eventually migrate to become bearish investors over time. Meredith Whitney is well-known for calling bull runs in markets and her fame grew in 2009 when she said the markets were rallying for no reason and the gains would soon be lost. According to Tom O’Halloran, an expert trader and Lord Abbeit mutual fund manager, investors who are seeking exposure to the best assets should not wait until a bear cycle before purchasing those assets. O’Halloran says that expensive assets are priced in proportion to the market rallying periods.

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What is Dovish and Hawkish in Forex?

What is Dovish and Hawkish in Forex?

Beginner traders may still be unfamiliar with the two terms above and are confused about what dovish and hawkish mean. Both of these terms are closely related to each other and need to be well understood by traders.

In this discussion, we will explain to you all about the complete Dovish and Hawkish terms.

Let’s look at the explanation below.

What is Dovish?

Dovish is a word derived from the English word dove, meaning dove in Indonesian. If you pay attention to the nature of the dove where it will always be careful and always fly low as if afraid of heights.

The nature of the dove gives understanding to dovish, which means making decisions more carefully and not taking high risks. Dovish can also be said to be away for a person to see the conditions that exist in the economy and are often used in decision making by the Central Bank regarding interest rates.

The Central Bank often holds important meetings to talk about economic movements and see whether they are still related to the current financial condition or not. Economic policies issued by the Central Bank will greatly affect the interest of forex traders to make transactions in buying and selling currencies.

Thus we can mean that dovish is a way of looking at the Central Bank with regard to changes in interest rates and also the perspective of traders when estimating future currency weakness.

The Central Bank will start issuing a dovish policy when they see a slowdown in economic growth and this is marked by a decline in inflation. Dovish has the nature of being prudent and not aggressive in making decisions on ongoing economic events.

An example of a case related to Dovish is what has happened to the Central Bank of Australia (RBA). Whereas at that time RBS said that the interest rate target would be at 1.75% and when they said this the interest rate was still in the range of 2.5%.

What Is Hawkish

Then there is a hawkish term whose meaning is very contrary to the above definition. Hawkish comes from the word hawk which means eagle in Indonesian. The nature of eagles is firm and always flies very high and is contrary to the nature of a dove.

So hawkish is an aggressive perspective when you are going to make decisions about an ongoing event. In its application hawkish is often used to make decisions at the Central Bank with regard to economic movements related to interest rates.

Dovish gives an indication of a decline in currencies, while hawkish leads to an increase in inflation rates. When the Central Bank sees inflation rising high, now they need to issue a hawkish argument.

When the above actions are taken, the consequences are able to reduce the inflation rate by increasing interest rates or reducing stimulus.

Examples of cases related to hawkish are when there are comments from the Fed, where they always say they will immediately increase interest rates. This hawkish comment issued by the Fed will attract people to buy USD and then be able to make the USD strengthen.

Conclusion About Dovish and Hawkish

Currency movements in the world depend heavily on economic policies carried out by the Central Bank. So it is very natural that the central banks of each country always hold meetings regularly to discuss whether economic policies are still relevant or not with the current situation. Thus, it is natural that economic policies always change over time.

When changes in economic policy, this will greatly affect the attractiveness of buying or selling the currency. This is where traders start looking for profits by predicting whether the currency will weaken or strengthen in the future.

The problem is that the meetings conducted by the Central Bank are not the same as data such as inflation or GDP which are numbers and can be read easily. Meetings held by the Central Bank are statements and they rarely mention exact figures.

Because of the above, investors and traders provide categories of statements issued by the Central Bank to Hawkish and Dovish.

With your ability to understand the interest rate policy of the currency being traded, this can increase the chances of getting a bigger profit. Although there are still other factors that will affect the rising and falling currencies, the changes in interest rates that occur are very important to understand.

The difference between hawkish and dovish is very simple and easy to distinguish. Where dovish leads to lower interest rates and has a more careful brush and will get a negative response from traders.

On the other hand, hawkish leads to more positive conditions and this can be known by an increase in interest rates and will usually get a positive response from traders.

Such is the Dovish and Hawkish explanation that we can convey regarding hawkish and also dovish. Hopefully, the information above can help you distinguish between the two terms.

Bullish And Bearish – Meaning, Relevance And More

The term bullish and bearish describes the condition in the market or the sentiment of the investors or a general market trend. Both bullish and bearish are the antonym of each other. If a market is in a long-term uptrend, it is called a bull market, and if the market is in a long-term downtrend or the prices are falling continuously, it is called a bear market.

For instance, you must have heard a trader or analyst say that “I am bullish on Company A.” This means, that the trader or analyst expects the stock price of the said company to go up.

Table of Contents

A Bullish Mindset

Bullishness is a mindset or sentiment when a trader feels the price of a security will move up. Usually, if a market recovers 20% or more from the bottom, then it is in a bullish phase. The term ‘bull’ as the name suggests, is inspired by the bull, who hits upwards with the horns. And, that is why it represents prices going up.

A Bearish Mindset

Bearishness is the sentiment that the securities and markets will go down or is moving down. The term ‘bear’ or ‘bearish’ as the name suggests comes from a bear, who hits downward with its pawns. Bears usually represent sellers in the market. They resort to selling as they believe things will get worse. Similar to the bull phase, a market or security enters the bear phase if it drops more than 20%.

Bullish and Bearish – How They are Used?

  • A point to note is that term bullish and bearish describes both the sentiment and trend towards a specific stock and also the whole market. For example, if a trader says that he is bearish on the stock market, it means he expect the market to drop. A trader may have his or her own bullish and bearish sentiment. But, if the majority of traders have the same sentiment, then it will lead a market into a downtrend or long-term up.
  • One can use both the terms to talk about the future and also the current trend. For example, one can say that the market is in a bullish phase, meaning the market is dropping. On the other hand, if one says that the market will have a bull run in summer, it will mean the future expectations.
  • Also, both bullish and bearish sentiment and predictions are backed by reasons. For instance, if a trader says that he is bullish on Apple after Q3 earnings, it means that the company will announce upbeat Q3 earnings, which will push the stock prices up.
  • A trader can be both bullish long-term and bearish short-term both on a specific stock and the market. For example, a new tax reform may push the market down initially, but in the long-term, it could push the market up.
  • Both these terms are commonly used in the stock market, but their use is not limited to stocks. One can use them to represent the trend in any financial market, including real-estate, commodities and more.
  • If a trader is bullish on the market, it does not mean that the price of all the securities will go up. Similar is the case with the bear phase as well.
  • Usually, a bullish market follows an economic expansion and bear market follows a recession. However, it is not always the case. A market can have a bull run without economic expansion or a bull market without a recession. Sometimes, a bull market follows a bear market, and vice versa.

How They can Help Traders?

Knowledge of bullish and bearish markets conditions could help traders make profits easily. A sufficient knowledge of these terms help traders identify bull and bear cycles beforehand, thus, take positions accordingly.

Traders can make profits in both bearish and bullish cycles. If a trader expects a bull, then he can buy the security or hold onto it for more time. And, if a trader expects the prices to drop, then he can sell the securities now to avoid losses. They can also short the stock if they expect the price to drop.

Conclusion

Every trader must know and understand both these terms clearly as they are frequently used in the financial markets. Also, these terms help understand the market more clearly and make profits irrespective of you being a day trader or a long-term investor.

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