With any investment market, there are seasonal ups and downs. A bull season can take years to accumulate. As a trader, you can't wait a few years to start profit taking, you need to have a strategy to make money even if the market drops.

That's when we talk about bearish market- the trend where all the price goes down. With retail markets such as stocks, a drop in price will cause the value of the stock to be lost. With forex, a drop in price in a currency requires the wise trader to convert the position or adjust the plan.

In this post, let’s dive in together what exactly is bearish? What are characteristics and signals of the bearish market? And more importantly, you need to know how to strategize to make money in a bear market.

Learn More: FXCE: Blog | The Complete Day Trading Guide You Need

What Is Bearish Market?

A bearish market refers to a going down market in which the value of most asset classes as a whole is trending lower than its average over a long period of time, with the same trading volume.

The amount of this reduction varies depending on the time of the period and the type of market. This might represent 20–30% of the recent peak price for stocks. With cryptocurrency, Bitcoin can lose up to 50% to 80% of its value since its high, which marks the start of the bearish phase. The crowd now begins to tremble, which causes some to cut their losses or tie their investments. As a result, this further restricts the money flow and prolongs the bearish period.

Bearish market is associated with the image of a bear because of its similarity in attack. The strong blows from the top are similar to the way the price movement trend is continuously falling sharply. During this time, there may be periods where the price increases, recovers but is insignificant and then falls deeper.

When it comes to this period, the financial community will be aware that not only does the price of stocks and coins decline, but it also represents the stagnation of businesses, the decline of some industries or lack of investment of the whole economy.

Classification 

Depending on the period, there can still be bullish short periods in a long downtrend. Conversely, when the market is active and bullish, there may still be short-term bearish days depending on the timeframe traders follow. There are three common types of discounts:

1. Bearish in the short term

Seen as testing zones, or short-term price declines during a sideways or uptrend. Time can range from a few minutes, a few hours to a few days. Typically, short-term bearish predictions are made from the results of chart analysis or during a time when the price has risen too quickly and sharply in a short time.

2. Bearish in the long term

Although there may be ups and downs over a longer length of time (monthly or annually), if the price falls sharply and continuously from the start, it is considered to be long-term bearish.

When the market is bearish for a long time, it may indicate that the business is underperforming and investors need to consider restructuring their stock holdings. 

In the forex market, a currency with a long-term downward trend indicates that the political and economic situation of a country is in serious trouble, traders may consider selling the currency or entering into other suitable futures contracts.

3. Bearish in the whole economy

When it comes to bearish market in a certain national economy, people often rely on economic variables, GDP, unemployment rate, etc. The deeper the market falls, the more pessimistic these variables are and the deeper it falls.

For example, when saying that the US economy witnessed a bearish period in the period of 2022-2023, the S&P 500 index fell from more than 4500 points to 3900. 

Bearish Market Characteristics

1. The downward trend of the price line

A bearish market consists of consecutive declines with new prices continuously making new lower dips and new lower peaks. Crossed among them were the upward corrections but the force was light, unable to break the resistance areas to break the downtrend.

2. Supply is greater than demand

This seems to be too understandable when the psychology of investors has become more hesitant, leading to demand and selling volume exceeding the buying volume, supply is greater than demand, leading to a decrease in commodity prices.

3. Changes in economic activity

Similar to the negative news that scares the crowd, the result of the cash flow being stopped is the collapse of some businesses, coins or currencies, which is manifested through the activities such as:

• Postponement of operation, bankruptcy from funds, banks, enterprises

• Stocks or coins being delisted from exchanges

• Major brands in Dow Jones' top 30 do staff cutting or downsizing the business

Forex Trading Strategy When Bearish

1. Identify a bearish market

Identify a Bearish Market Through Indicators

Popular indicators include:

• MA: moving average that is closest to the nature of the market. If the market price is always below the moving average, this indicates that the current price trend is falling below the historical average price.

• SMA: Even simpler, the cycle completely depends on the trading strategies, which can be short or long term.

You can update the information about Indicator and other trading essentials at the blog area of FXCE website.

Identify a Bear Market Through Price Action

You should know that the characteristics of the bearish market will be clearly shown through each feature of the price movement on the price chart.

• When the price moves, the former high is lower than the latter and the previous low is deeper than the latter.

• The market's slight upward corrections will be interspersed with long-term general declines.

>> Determine the line of trend through news: FXCE: Blog | The impact of Forex news on trading 

2. Enter the order

When the general trend is down, in order to optimize profits, the best way is to keep main orders on sell orders and catch buy orders when there is a slight recovery signal. To determine the signal can use different tools such as:

• Moving Average: Once the MA is identified, you can know when the price hits that MA and continues to decrease.

• Trendline: Similar to MA, if the trendline of the downtrend can be drawn, then place buy orders when the price corrects, sell orders when the price reverses.

• Reversal candlestick pattern: in case the price does not touch the trendline or MA, you can enter orders with signals from bearish reversal price patterns such as Tweezer Top, Gravestone Doji, Evening star,...

3. Set Stop Loss and Take Profit

Remember that the actual market can always fluctuate completely differently from the theory, so hedging with SL and TP is always necessary. With MA and Trendline, you can refer to placing SL right above the MA/Trendline, at the entry position. With a reversal candlestick pattern, the highest price is usually the most placed point.

Conclusion

The bearish market is no longer scary if you accumulate enough knowledge and experience for yourself in the previous bull. Hopefully all above definition and recommendations of strategy help you have clearer awareness of downward seasons. 

But no matter bears or bullish market, we would always be here and raise a lot of activities for trading community: 

• Copy trade or become a signal provider: www.fxce.com 

• Join FXCE community about Social Trading Platform: https://t.me/fxceSTP  

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