Market Types in $Financial$ Market(Bull, Bear, Range)!!!

By learning the market types, you can follow the price trail and hunt it like a hunter, even if it’s a bear or a bull.

Pejman Zwin Author
13 min read
Published: June 06, 2023
Views: 51

Content

Bullish Market
Bearish Market
Range Market

Have you ever been lost in an unfamiliar place? And don’t know which way you should go to get to your destination? Have you ever cooked? If you don’t have a recipe, you don’t know when is the right time to add salt or sugar.

Financial markets need a map or a recipe, just like the examples above. In the past, when I looked at the chart, I couldn’t tell which way the price was going or how I found out in what phase the market is now.

After a bit of research and looking at the chart, I realized that the market sometimes moves up, and the price of a stock or currency increases and sometimes decreases.

But I noticed another type of movement. As if the market was neither going up nor down; in fact, the movements of the chart were unknown to me. All these ups and downs and even unknown movements had more points than I thought.

You have probably heard the names of bullish and bearish markets. No one knows precisely what these names are rooted in, but one can guess that they chose these names because of the type of attack of these animals.

For example, when a bull wants to attack, it hits from below with its horns and causes prey to be tossed upwards. For this reason, a market with an upward trend is called a bullish market.

And the bear strikes with its claws from above and causes the prey to fall. Therefore, markets with a downward trend are also called bearish markets. Let’s learn all these terms and their points together. First, you should know the types of the market.

Market Types

As a general view of the market, I have to say that the market is either a trend or a range.

A trending market is like a thrown ball that goes up and down in a specific direction. The result of a trending market movement is finally ascending or descending.

But range or fluctuating markets are a type of stagnant market. With a bit of attention, you’ll see that sometimes the market is neither ascending nor descending, and the price only fluctuates around one axis and has an indeterminate movement.

I found out that usually, the market starts with an upward or downward trend, but after reaching a certain point, it stops. After the temporary stop, it either continues its trend or the trend changes. In fact, the market is in the phase of deciding its next move.

When I was not in control of the market, I could make a good profit after identifying the upward or downward trends, but in the range market, I lost all my profit and even had some losses. I recommend not to trade until you learn well in the range markets. But how to know these trends? Let’s get to know their features further.

Bullish Market

As it is clear from the name of a bullish market, it is expected that the price will increase during that period, or it is predicted that the price level in the future will be higher than today.

Therefore, you consider the current price suitable for buying, and every time the price drops as an opportunity for a better purchase. If a decline occurs, see them as short-term corrections.

If you look carefully at the chart below, you will notice that the price forms a Higher Low(HL) every time. Can you guess what the reason is?

As you can see, in the bullish market, the price has formed Higher High(HH) and Higher Low(HL) every time, and in this market, there are more buy orders than sell orders. Traders make their purchases a little earlier and even more expensive every time for fear of losing the bullish market, and each valley is one step higher than the previous one.

I used to think the same way and told myself that if I didn’t buy today, it would be more expensive tomorrow, or today’s prices would be a dream for me later. These sentences show a positive feeling about the market and hope for the future, increasing the price significantly.

The price inflates with successive purchases, like a balloon, and eventually, this positive market balloon bursts. There is no permanent upward trend, and this balloon will burst one day.

If you are one of those who bought late, you will lose a lot. So even in this market, you must be careful where you enter the trend. According to my experience, the bullish market includes the following:

Each valley must form one step higher than the previous one.
Usually, each peak forms one step higher than the previous peak.
Preferably, when the price rises above a peak, it does not return below it again.

I want to add one more point: if the price forms a valley higher than the previous peak, it signifies stability and the strength of the upward trend.

This point is compatible with valid failure. As I said in the previous articles, when the price crosses its last peak and breaks the previous High, it should not return below it again.

This article becomes a reason to review the previous points. I have drawn the example in the chart below. Let’s take a look.

Now that you are familiar with the bullish market let’s talk about the bearish market in the next step.

Bearish Market

In a bearish market, the price tends to decrease more, and you expect the price to fall in the future from what it is today, and obviously, sellers are more than buyers.

Inverse the rising market, the price makes lower peaks and valleys and goes down one step in this market. Let’s see a downtrend together in the chart below.

If too many sales happen in this process, the same balloon as before will be inflated but in a negative direction. As I mentioned in the previous articles, the price will stop going down at some point called the support area, and this negative balloon will burst, and the price will be supported. Please pay attention to the following example.

So far, I have talked about trending markets. Now let’s talk about the range market.

Range Market

The price in the range market doesn’t have any specific direction, and the market doesn’t move up or down for a while but only fluctuates around one axis.

It is easy to recognize this market: if you can’t see any rising or falling signs for the peaks and valleys, you must be faced with a range market. In the range market, you are like a hunter who is not sure he has chosen the proper prey. Neither you can make a suitable purchase, nor you’re sure of continuing the downward trend.

Buyers and sellers have not added enough liquidity to start a strong movement in the market. The trading volume in the range market is less than in the trending market. Here’s an example of a range market. Can you find a specific trend between purple areas?

It would take some time to identify the range market, and the price must have at least two collisions with the support and two with the resistance. It should have two parallel peaks and two parallel valleys. The ranging market is temporary and shows the indecision of buyers and sellers.

When I didn’t know how to trade in the range markets, I was waiting for opportunities to make a good profit, just like in the trending markets, but I was wrong. Before trading in different trends, you should be able to recognize these trends well. So, practice trend recognition before trading. Let’s learn together how to identify different trends.

Trend Detection

If you remember, I talked about the dynamic support and resistance lines in the previous articles; These lines are aligned to trend lines. One of the ways to detect a trend is to use a trend line. Trend lines are drawn from the highest or lowest prices to determine your share price path. I will explain the exact method of drawing the trend line.

Therefore, you can use the downward and upward trend lines to identify the support and resistance points of the assets. Although trend lines help you to identify market trends, sometimes they need to be redrawn. For example, in an upward trend, the price may go below the trend line for a while, but it doesn’t mean that the trend line has broken or ended.

The price may fall under the trend line and start its upward trend again. In such a case, you may have to face an invalid failure, and maybe it’s a sign of a new function. It is better to redraw your trend line in these situations.

As you know, the more price encounters with a trend line, the more valid the trend line is. Maybe you have mistaken support and resistance lines with trend lines. But I have to say that the trend line shows where the previous upward or downward trend has met resistance or support in the past.

You must know that support and resistance are two important factors to identify the trend because every bullish trend shows market progress toward breaking the previous resistance. Also, a bearish trend may break the price support level.

Another thing that can help us identify the trend is the candlesticks. You got acquainted with the candlestick patterns in the previous articles that either can be a sign of the continuation of the trend or a sign of a change in the trend.

As you can see in the above chart, depending on where the reversal candle appears on the price chart, you can comment on the trend change from bearish to bullish or bullish to bearish. Now that you know the trends, it’s time to learn to take a position by these trends.

How to trade in trend markets?

After getting to know each trend, it has become easier for me to trade with it. Let me say that every trend is like the main road where the price remains until the desired destination. After getting to the destination, the price changes direction and leaves the main road, but before leaving, it turns on the indicator and tells you it is time to leave the trend.

Maybe you have heard this saying: Be fearful when others are greedy and be greedy when others are fearful. But this statement is not correct in most cases. You have to be a wave rider and move on every trend while trading in trend markets.

A simple method is to follow this sentence: buy high and sell higher. For example, in a financial market, you may see that the price increases for several days or weeks in a row. In a bullish market, you should not wait too long for the prices to go negative.

Do not tell yourself that the price has become too expensive. Because as long as technical analysis shows an upward trend, you should also be brave and tell yourself that you may have bought expensive now, but you will sell more expensive later.

There was a time that I was afraid to exit the position or save my profit because I thought that the trend would not continue and that I would have exited the trend early. But you have to be brave and greedy. It happened to me many times that the stock simply multiplied, and I was often satisfied with small profits and quickly exited the market. That’s why I couldn’t get big profits.

When should I be brave, and when should I be greedy? When should I get scared and leave? You should be able to adjust your greed level according to the type of market. As I said, just swim with the waves. Swimming against the waves may drown you.

Trending markets are better identified, and you can trade with them easily. I will tell you how to trade in the range markets in the following.

How to trade in range markets?

I realized that in a range market, I should be satisfied with small profits like 5-20%, and if I tried to look for a significant profit in a range market, I would lose all the small profits. In range markets, you must wait for the price to drop low or rise high enough. The method of trading in range markets is this sentence: buy low, sell high.

You will see negative news about the market when the price is in range. To be honest, it is tough to overcome your emotions and trade bravely under the pressure of fear and anxiety in the market. Do you know anything about the sentence “swim against the wave”?

You can swim against the waves in the range markets. In this market, you can buy whenever others are afraid of a downward trend because, in range markets, the majority is wrong. However, I never recommend trading with or against the news. Take a look at the chart below.

Like the example above, usually, after a bullish or bearish trend, the market will range for a while, and you have to wait for suitable conditions to take your position. In range markets, when everyone is happy about the price increase, you should sell or be satisfied with low profits and exit the market quickly.

One final note about range markets: When I was trading and didn’t know what would happen after range markets, I realized that when the price is in a tight range for an extended period and under pressure, it can eventually go up or down with a strong movement. And also, realize that the longer the range lasts, the stronger the movement will be.

After all, I would like to say that you should be careful about taking a position in the range markets because it requires a lot of precision.

Conclusion

As I said, the financial markets are either trending or moving in a range. Recognizing the market trend is one of the most important things for taking a position because if you enter the wrong direction, you may lose a lot. Now I will give you this road map for your trading after practicing.

Do not forget that going against the trend is not always profitable. Pay attention to market news, but don’t make all your criteria on market news and emotions because this case can’t always be true either.

I said that you could use the trend line and candlestick patterns to identify the market’s trend, but you can do it with the help of indicators, which I will mention in future articles. Learning, practicing, precision, and making the right decisions are the keys to success in the financial markets.