A market sentiment where traders expect prices to fall. Characterized by lower highs and lower lows.
Deep Dive
Bearish describes a negative market outlook where traders expect prices to fall. The term comes from how a bear attacks - swiping its paws downward, symbolizing falling prices. A bearish trader believes the market will decline and positions accordingly, either shorting or avoiding long positions.
Bearish conditions are identified by price making lower highs and lower lows, price trading below key moving averages, volume increasing on down moves, bearish candlestick patterns at resistance, and negative market breadth. During bear markets, rallies tend to fail at resistance and declines tend to accelerate.
Understanding bearish conditions helps traders avoid the common mistake of trying to catch falling knives. In bear markets, the strategy shifts to selling rallies rather than buying dips. Even if you don't short, recognizing bearish conditions helps you stay in cash and preserve capital.
Why It Matters
Recognizing bearish conditions helps traders identify opportunities for short positions or to avoid longs.
Related Terms
- Resistance — A price level where selling pressure is strong enough to prevent the price from rising further. It acts as a ceiling for the price.
- Trend — The general direction in which the price of an asset is moving. Trends can be upward (bullish), downward (bearish), or sideways (ranging).
- Bullish — A market sentiment where traders expect prices to rise. Characterized by higher highs and higher lows.