What Does Bullish Mean in Forex Trading?

The origin of the term bullish

The term ‘bullish’ or ‘bull’ originates from the metaphor of a bull, who attacks by thrusting his horns up in the air, thus pushing prices higher.

Utilization and application of the term bullish in trading

The term ‘bullish’ is utilized in all the financial markets, such as stock markets, options markets, the forex market, and commodities markets, to name but a few.

Bullish viewpoints can be specific opinions about, inter alia, a single share, a currency, and the indices of a stock exchange, or they can be wide-ranging opinions about an overall market or exchange, such as the commodity market for gold or a stock exchange like the Johannesburg Stock Exchange (JSE).

The term is even sometimes used to describe the economy of a country during a given period of time.

Furthermore, bullish can describe the opinion of an individual or a specific group.

What does bullish mean in trading?

Simply put, bullish means that a trader or investor is of the opinion that the price of a security will increase from where it currently is. Concerning a financial market, a bull market implies that the overall market is in an uptrend, marked by higher highs and lower lows, and that it will keep rising.

When the bulls take charge of a market, it is characterised by high confidence, traders, and investors who are positive about trading and investment opportunities, optimism about generating profits, and a lower aversion for risk.

In a bull market, bullish is an important strategy applied by traders to utilize the opportunity to enter the specific market and buy when prices are rising in order to sell when they are convinced that the market has reached the top of the current upward trend.

On the contrary, bearish describes a situation when markets follow a downward trend, and when traders expect prices will fall and securities will decline in value.

Traders and investors can be bullish for the short-term when they believe that a stock’s price will rise in a short period of time, such as the coming days, weeks, or even hours or minutes. Such an attitude may be the result of analysing chart patterns or price trends. A bullish opinion in this case has nothing to do with the company involved. For example, if a trader presumes a company’s shares are oversold, he or she may purchase shares with the expectation of a quick reversal.

Some other traders are bullish for the short-term because they are anticipating that some favourable events will occur in the near future, such as the releasing of a company’s financial statements, containing positive results.

When an investor is bullish for the long-term, it means, for instance, that he or she thinks that a company’s shares are undervalued at its current market price.

Bullish in forex trading

Forex trading provides traders with the opportunity to trade in both bullish and bearish markets. This is because forex trading is always done in currency pairs, implying that when one currency is declining, the other one is rising, allowing a trader to benefit from a rising and falling market.

It is important to focus on bull and bear markets because they can determine the market trends of currencies. By being knowledgeable about market trends, traders are enabled to make informed decisions about risk management and to open and close positions.

The terms, bullish, bull, buying, or being long, are used interchangeably in forex trading. For instance, instead of saying ‘I have a long position on that currency,’, a trader may say, ‘I am bullish on that currency.’

Bullish chart patterns

Generally, in forex trading, a chart pattern is a distinctive formation within a price chart, created by the movements of currency prices. Chart patterns are the foundation of technical analysis and assist forex traders to predict what prices might do next, based on previous performances.

Bullish chart patterns may form after a market downtrend, indicating a reversal of price movements. They are signals for forex traders to consider opening long positions to profit from any upward movements.

There are numerous bullish chart patterns, such as bull flags, bull pennants, bull triangles, and inverted head and shoulders, to name but a few.

There is no ‘best’ chart pattern, because they are all utilized to indicate bullish trends in order to take the best possible positions at the opportune moment.

The focus of this article will only be on the following three bullish patterns: Ascending triangle pattern, falling wedge pattern, and bullish pennant pattern.

Ascending triangle pattern

A triangle pattern in forex is a consolidation pattern that occurs mid-trend, usually indicating that an existing trend will continue. The pattern is formed by drawing two converging trendlines, indicating that a price temporarily moves in a sideways direction.

In the ascending triangle pattern, the upper trendline is flat and the lower trendline is ascending. This pattern signals that buyers are more confident and aggressive than sellers as the price continues to make higher lows. The price moves to the flat upper trendline, and the more of this trend, the more the probability to eventually break through to the upside. This breakout is a signal for bullish traders to take a long position.

Falling wedge pattern

The falling wedge pattern, also referred to as the descending wedge, is a pattern that indicates future bullish momentum.

It is a pattern formed when the price bounces between two downward sloping, converging trendlines.

The descending wedge is considered both a bullish continuation and a bullish reversal pattern. It is a continuation pattern if it appears in an uptrend, implying that the upward price action will recommence. As a reversal pattern, it appears in a downtrend, signalling that an uptrend is imminent.

Both patterns are indicators of possibilities for buyers to enter long positions.

Bullish pennant pattern

A pennant is a continuation chart pattern, formed when a currency encounters a large upward or downward movement, followed by a brief consolidation, continuing to move in the same direction.

Characteristics of a pennant pattern:

• A flagpole: A pennant pattern always commences with a flagpole, indicating the initial strong move.
• Breakout levels: There are two breakouts where the upward or downward trend continues – one at the end of the flagpole, and the other one after the consolidation period.
• The pennant itself: The pennant is the triangular pattern formed by the two converging trendlines. The pennant occurs between the flagpole and the breakout when the market consolidates.

Bullish forex traders see a breakout above the pennant as an opportunity to take advantage of the renewed bullish momentum in the market.

Frequently Asked Questions

What is a Bullish Market?

A market in which a trader is optimistic that the price will go higher.

Is a bullish market good?

You have to understand that a bullish market spikes investor confidence and expectations that strong trading results will continue for a considerable time. To predict when this trend might change is difficult.

Do you sell or buy in a bullish market?

The ideal is to take advantage of the rising prices by buying stock early and selling them when they have reached their peak.

Is it good to buy bearish stocks?

Yes, but keep in mind that you run the risk of stocks prices going down after you have bought it.

Can forex make you rich?

If you are a skilled trader it is possible but for most it is a rocky journey with many losses.