Strategies when Doing Forex Trading in Bull Markets
Forex trading is one of the most popular forms of investment these days. The widespread accessibility of computers and Internet connections has made it easier for people to learn about and start trading in the forex market. If you are new to forex trading, then you have probably found out by now that the list of terms and concepts used to describe the market is long and complicated. One of the terms that you are likely to come across is “bull market.” If you’ve ever wondered what a bull market is and what it means when it comes to forex trading, then you’ve come to the right place. Read on to learn more about forex bull markets and how you can employ certain trading strategies to take advantage of bull market conditions.
What is a bull market?
The term “bull market” is used to describe conditions in a market in which the prices are on the rise or are expected to rise. Although the term bull market is often applied when describing stock market conditions, the term can also be used for other types of markets, such as the bonds, commodities, or foreign exchange market. In most cases, a bull market is met by widespread optimism from investors, because the rising prices can lead to increased returns. In a sense, you can remember this term by thinking of a bull when it sees the red cape of the bullfighter, it gets excited and charges, much like investors charge at bull markets in an attempt to capitalize on the market conditions. In fact, investors who anticipate market prices to increase are often referred to as bulls.
In most cases, it is quite difficult to predict price movements, which makes it difficult to anticipate when a bull market will come along. There are some tell-tale signs, though, such as the economic and political changes that may lead to an increase in the value of a country’s currency. Take the United States, for example. For over a year, the US has been in the recession that has caused bearish trends in many US markets. The term “bearish” relates to a “bear market,” in which prices decline sharply (by at least 20%) over a prolonged period of time (two months or longer). Some investors may think that the bear market will come to an end with the Obama administration. In this case, the bulls are hoping that the political changes will turn the tides and strengthen the US dollar, causing a bull market. This is how economic and political factors can hint at bullish changes in the forex market.
How is forex trading done in a bull market?
One of the great advantages of the foreign exchange market is that there is always a bull market when it comes to forex trading. The forex market is a zero-sum market. This means that, when one currency is experiencing price drops, another currency is experiencing price increases of the same margins. The zero-sum characteristic of the forex market is innate to the way that currencies and the foreign exchange itself work. Because forex trading is always done in pairs, when one of the currencies in the currency pair weakens, the other strengthens. This means that there is always an opportunity for forex traders to make profits, no matter what the market conditions are. All it takes is good judgment and good timing, although that is much easier said than done.
Although many people see this zero-sum model as an advantage, it is also a disadvantage. The fact that there is always a bull market also means that there is always a bear market. Let us use an example here (this information is fictitious). Let’s say that two months ago, the USDGBP foreign exchange rate was at 0.60, meaning that one US dollar is equal to 0.60 pound sterling. If the US dollar strengthens by 10%, the resulting value will be USDGBP = 0.66, indicating a bull market for the US dollar. On the other hand of the equation, the pound sterling weakened and experienced a bearish, downward trend against the dollar. This is a clear illustration of how the zero-sum nature of the forex market works.
Tips when trading in a bull market
While it is easy to get excited by bullish trends in the market, you should always try to make rational decisions by analyzing the market and its history first. To best illustrate this idea, let’s use a hypothetical foreign exchange scenario. For example, the US dollar may strengthen by 10% in the last two months (a bullish trend), but it may decline once again and perhaps even surpass the previous low point two months ago. This can be unexpected that some investors may lose their money easily instead of gain profits from the market condition because they failed to think about the market condition in both ways.
So What have you learned here? It’s important to keep your emotions in check when forex trading. Market volatility and unpredictability can have you investing in bullish trends that result in grizzly, bearish endings.
Still, when you do catch on to a good bull market, try to ride the bull to the top. This sounds easier than it is since prices can rise and fall without warning. One way to manage your bull riding is to use stop loss strategies. For example, you can ride a bull market for so long as it keeps increasing, but you can decide to pull out your money once the price falls by a certain amount. Stop loss strategies are your best friend if you plan on riding bull trends.
There are numerous types of stop-loss strategies out there, so it would be a good idea to do your research. Remember that the forex trading strategy that you use should be based on your own analysis, market observations, and financial situation. Following the strategies of others can lead to disaster, so it’s best to come up with your own investment plans. Always keep track of the market so you can choose the optimal times to pull out or go all-in on an investment.