Hello Finance Buddies, have you ever heard of the terms bullish and bearish? If you’re still a beginner in the trading world, don’t worry! We will cover everything in this article!
So, these two terms are examples of trends occurring in the market. A trend is a movement indicating the direction of the market. Many professional traders say, “The trend is your friend.” To make a profit in trading, you need to ensure the price trend is in an ideal condition.
Curious about the types of trends and how to read whether prices will rise or fall? Check out the explanation below!
Understanding the 3 Types of Price Trends
1. Bullish Trend
The term bullish comes from the animal bull. A bullish trend is a condition where there are more buyers than sellers in the market, causing prices to soar and potentially reach their highest point within a certain period. A bullish trend is characterized by an upward movement in the price chart. This trend is usually utilized by investors or traders to sell their assets. The higher the price increase from the initial price, the greater the profit that can be obtained through sales.
For investors who do not yet own the asset, they typically take advantage of this trend to buy the asset in order to profit from its potential increase. But still, be careful because there is a potential for a downturn, right?
2. Bearish Trend
The term bearish comes from the animal bear. Bearish is the opposite of bullish. This trend is a condition where there are more sellers than buyers, causing the asset price to reach its lowest point. A bearish market condition is marked by a decline in the asset price chart. Usually, during a bearish condition, investors tend to sell off their assets (panic selling). To avoid this trend, choose assets with good fundamentals so their prices remain stable. Additionally, it’s important to understand the risks you can tolerate.
3. Sideways Trend
Unlike bullish and bearish, a sideways trend is a condition where the market is stable. This means the number of buyers and sellers in the capital market tends to be balanced. Although the market is stable, it doesn’t mean the chart forms a straight line. A sideways condition is shown by small hills and shallow valleys on the chart. Generally, this condition is ideal for long-term investments. However, it’s not uncommon for investors or traders to buy when the price reaches the lowest valley and sell when the price reaches the highest peak.
How to Read Whether Prices Will Rise or Fall
1. Reading Trends Through Candlestick Charts
A candlestick is a type of chart that resembles a candle. Candlesticks help traders determine the right momentum to buy or sell. Simply put, candlesticks are signals for a trader to execute transactions. In a candlestick chart, you need to analyze several elements:
Body Size: The size of the candlestick body indicates the strength of momentum. If the candlestick is lengthening or getting bigger, it means the momentum is strengthening. Conversely, if it is shrinking, it means the momentum is weakening.
Candle Color: Simply put, if the candle color changes from red to green with a long size, it means the price will reverse from falling to rising (bullish). Conversely, if the candle color changes from green to red, it means the price will soon change from rising to falling (bearish).
Candle Shape: The length of a candle’s wick indicates the level of price movement volatility. The longer the candle wick, the greater the price volatility. Meanwhile, if there is a short candle in the middle of two long wicks, it means the market is in a state of indecision.
These elements indicate various market conditions. For instance, if the candle is green and long, it means the buying power is high, and buyers are in full control. Conversely, if it is red and short, it means sellers are in full control.
2. Reading Trends Through Moving Averages
A moving average (MA) is an indicator that averages price movements over a certain period into a single straight line. MA can be a reference for analyzing price trends. In analyzing trends through MA, traders usually pay attention to the position of the line and the crossover between MA lines.
If the current price is below the MA line, it means the trend is bearish or there are more sellers than buyers, causing the price to decline. Conversely, if the current price is above the MA line, it means the market is bullish, with more buyers than sellers, causing the price to rise.
So, how do you know the transition from a bearish to a bullish trend? The way is by using two MA lines. Generally, traders use the MA20 and MA50 lines. The transition from a bearish to a bullish trend occurs when the MA20 line moves up and crosses the MA50 line. This phenomenon is called a golden cross. Meanwhile, if the MA50 line moves down and crosses the MA20, it means there is a transition from a bullish to a bearish trend. This phenomenon is called a death cross.
3. Reading Trends Through Trendlines
Another way, besides using candlesticks and MAs, is using trendlines. With this feature, you can easily determine support and resistance levels. A trendline is a boundary line of a trend. When a bullish trend occurs, the uptrend line below the price will act as support. Meanwhile, if a bearish trend occurs, the downtrend line above the price will act as resistance. Price changes will occur when the trendline is breached. In its use, trendlines can be combined with other technical indicators.
You can use trendlines as a reference for buying and selling activities. If you want to buy, make sure an uptrend is happening. Don’t forget to wait for the bullish signal. Conversely, if you want to sell, make sure a downtrend is occurring and wait for the bearish signal.
So, Finance Buddies, that’s an overview of how to read whether prices will rise or fall. To become knowledgeable in the trading world, always check Invlinic’s blog! There will be plenty of information about financial planning, investment, trading, and the latest updates in the financial world.