What does bullish mean?
Definition
To simplify, the term "bullish" refers to an investor's optimistic view that a stock or the market as a whole will increase in value. On the other hand, "bearish" describes investors who anticipate a decline or poor performance in a particular stock. Investors who are bullish are often called "bulls," while those who are bearish are referred to as "bears." However, the definition of bullish can vary depending on whether an investor is focused on the short-term or long-term outcomes.
Understanding bullish
The term "bullish" is used to describe a positive view on a specific stock, market, or the entire economy. When an economist or investor is described as bullish, it means they have a positive outlook and believe that the stock or market will rise in value. For example, a bullish view on the U.S. economy indicates that the individual expects the economy to experience significant GDP growth and other positive economic developments. Bullish views can be short-term or long-term, just like with individual stocks.
Likewise, the term "bull market" indicates an extended period when the stock market is on a consistent upward trend, typically lasting for several years. A prime example of a bull market is the period from March 2009 to March 2020.
In contrast, a "bear market" represents a time of declining stock prices, usually recognized by a 20% decrease from recent highs. These market conditions tend to be short-lived when compared to bull markets and can range from a few months to a year or two. An illustration of a bear market is the period from October 2007 to March 2009.
Bullish long-term trading
If an investor has a positive outlook on a company's future and thinks their stock is undervalued, they are considered bullish for the long term. This term can also be used to describe confidence in a specific sector, industry, or technology. For instance, a person could express their bullishness on traditional retail stores or self-driving cars. A bullish investor in an industry might invest in various companies within that sector, hoping to discover the eventual market leader.
Bullish short-term trading
A short-term trader who has a bullish outlook expects a stock to increase in value over the next few days, weeks, or even minutes. This prediction may be based on analyzing stock charts or intraday volume and price fluctuations. The bullish perspective may not be linked to the underlying company, such as when a trader purchases shares in anticipation of a rapid reversal because they believe the stock is oversold. Alternatively, some short-term traders are optimistic because they're gambling that a favorable event will occur in the near future. For example, a trader could purchase a stock the day before its quarterly earnings are announced, hoping that the company will exceed expectations.
Bull vs. Bear
A functional market requires both bullish and bearish sentiments. If all market participants were always optimistic and willing to buy securities at any price, there would be no one to sell those securities.
Bulls are individuals who want to purchase securities because they believe that they will appreciate in value. On the other hand, bears expect to achieve higher returns elsewhere and want to sell some or all of their securities.
It is important to note that one's bullish or bearish outlook can change based on several factors. For example, the price of a security may change to a point where fewer bulls see potential for gains, causing them to become more bearish.
Similarly, if the stock price drops to a point where more bears do not expect it to continue dropping, they may become more bullish. Changes within the company, government regulations, or macroeconomic factors may also cause a shift in one's bullish or bearish outlook.
It is acceptable to change one's mind based on new information. Ultimately, bulls and bears are not fundamentally different.