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Bull vs. Bear: Tools for Navigating Both Kinds of Markets



Most forex traders want to stay active throughout the year, even as market conditions change. Whether you’re facing a bull market or a bear market, forex trading opportunities are out there for individuals who are willing to do the research and adapt their strategies.

The key to trading in any market is understanding the factors affecting price movements. Although uncertainty in market conditions is risky territory for any trader, volatility is a profit opportunity if you have the right tools at your disposal.

Here’s a look at some basic steps you can take to adjust your trading strategy based on changing market conditions.

Bear-Bull Relationships in Currency Pairs

Unlike with other investment trading strategies, forex has a unique relationship with bear and bull markets because forex trading involves two currency pairs from different countries—and these countries may be experiencing different market trends.

With forex trading, the interplay of bear and bull markets can create unique circumstances that traders can use to their benefit.

EUR/USD and USD/CHF, for example, are often inversely related to each other. If the U.S. dollar is strong, the value of USD/CHF will likely rise, which lets traders take advantage of an American bull market. But the U.S. dollar’s relative rise could be a sign of the euro suffering a bear market, which means that even as the USD/CHF pair goes up, EUR/USD goes down in value.

Traders can use these currency pair dynamics to find strong price movements in either direction when bull or bear market conditions develop.

Turning a Profit in a Bull Market

Ready to seize upon the optimism of a bull market? Here are some tips to help you capitalize on this opportunity:

  • Take long positions to capitalize on bull trends. When markets are strong and optimism is high, long-term growth is likely to follow. Traders can extend their trading time frames based on this overall stability.
  • Use technical indicators to measure momentum. No bull market lasts forever, but momentum indicators can help you determine how long a price move is expected to last. This can help you set a trading time frame and pick the right moment to exit your position, preserving your profits.
  • Use contracts for difference (CFDs) to maximize your earning potential. During a period of economic growth, CFDs help you leverage your capital to the greatest degree of profit.

Bull markets can uplift economic confidence among consumers, but they aren’t the only type of situation in which traders can find profits. Even when bull markets take a turn for the worse, experienced traders can shift their priorities accordingly.

Finding Forex Opportunities in a Bear Market

Although a bear market reflects downward economic momentum for a country—and sometimes even the global economy—there are still trading tools you can use to capitalize on trading opportunities:

  • Lean on pairs featuring safe-haven currencies such as the U.S. dollar, euro, and yen. These currencies are likely to be more stable and can be paired with currencies from bear markets to help traders take advantage of market volatility.
  • Maintain positions for short time frames ranging from a few minutes to a day. Due to the market conditions, long positions aren’t likely to offer as much value.
  • Trade the “rise” in downward price movements. This is the pullback during a larger price decline that can be used to claim a quick profit.
  • Use stop-losses to minimize your risk. The market may be in decline, but you can protect yourself by exiting a position at the first sign of a loss.

The volatility created by bear markets can be harnessed for trading success if you take steps to mitigate your exposure while also paying close attention to trading activity for select currency pairs.

Trading the US30, US100, and US500 Indexes

Bear and bull market trends are always reflected in the three major U.S. stock indexes. Because the global market and the U.S. market are so closely related, a global bull or bear market will likely be reflected in these U.S. indexes—and the indexes themselves are great tools for trading on the relative strength of the U.S. economy.

Capitalize on bear and bull markets by using these strategies when trading the US30, US100, and US500:

  • Go long in bull markets, and short for bear markets. Periods of economic recovery and growth—especially after a downturn—can create significant profit opportunities if you’re willing to invest time by holding a long position in a bull market. In bear markets, meanwhile, you’re better off sticking to short selling to profit off index value declines, or trading within shorter time frames that let you target pullbacks in these indexes.
  • Use jobs reports and other government reports to capitalize on market reactions. Pay attention to forecasts for these reports and use stop-loss trading to open positions in anticipation of instant reactions to economic news. During a period of volatility, these reports can generate a fast price movement that can give traders a tidy profit within an hour or less.

Prepare Yourself for Any Situation

Successful trading doesn’t depend on perfect market conditions. It depends on traders using the right tools and researching opportunities based on what suits their preferred trading style.

Test these strategies for yourself—open a demo account today.

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The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.