If you are new to Forex, you might feel overwhelmed by the crazy terminology. And one of the words you will hear the most is “bulls”. And there are also “bears”, who are supposedly fighting those bulls… but not always and sometimes become them? It’s complicated.
The bulls are the Forex market participants that purchase the currency pairs and sell them for profit. In order to do this, they have to buy low and sell high, which is only possible in the ascending markets.
This differentiates the bulls from the bears, who have an affinity for the descending markets. It is this distinction that has earned the trader classes their nicknames — the actual bulls attack from below and throw their enemies upwards, while the bears prefer to strike from above and smash the opponent to the ground.
As been said before, the bulls need the price to rise after they have made their purchase. If you are familiar with the market, you’ll know that it will actually rise by itself, since the bulls have shortened the supply of free currency on the market. However, it’s not enough to even cover the initial expenses.
The bullish Forex trading strategy is to seek the economic news that is sure to cause a market growth. For example, if Japan is publishing a GDP report and you are sure that it is positive, you can purchase the yen before it releases. Good economic news usually causes increased interest in the currency and the market will rise — allowing you to sell your yen at a higher price.
However, the markets can not rise forever — and sometimes the news is bad, which causes them not to rise at all. When faced with the descending market, the bulls either choose not to trade at all or transform into the bears.
Forex markets are hihly cyclical. Each currency pair can be in one of four states, that follow one another. In order to determine a state, traders use technical analysis.
Accumulation is the beginning state when the price is low. During Accumulation, the bulls make purchases, which causes the price to rise.
Mark-Up is the intermediary state when the price is rising. It ends with the price fixing at a higher point.
Once the Mark-Up period is over, the bulls start selling their currency and leaving the market. However, the ones that have a capacity to short currency, become bears instead.
Distribution is the antithesis to the Accumulation and happens when the price reaches its peak. During that period, the bears begin to short currency.
Mark-Down is the final state of the market. Du e to shorting, the price begins to fall and back into the Accumulation. Once it reaches the lowest point, the bears begin closing their orders and confirming the profits. The cycle begins anew.
All this means, that purely bullish Forex trading only has a capacity to profit from half of the market events. If you want to maximize your income, you need to be able to switch allegiances. Of course, you need to be able to short in order to do so. And for that, you are going to need trade via a Forex broker — for example, JustForex broker.
On Forex, a currency pair is the main trading instrument. Traders usually choose major currency pairs, the so-called majors. But there are other currencies available...