Basics of binary options: bulls and bears in financial markets
- VFX Blog
- For beginners
Like any other field of activity, trading in financial markets has its own professional slang, and its most famous representatives are «bulls» and «bears». On all exchanges and assets, they are the main drivers of price changes, and let's look at them in more detail to know how to make money on binary options.
Let's start with the definitions:
- Bull - traders who make a profit as a result of an increase in the price of a currency pair and opening buy positions (BUY);
- Bear - traders who make money by reducing the price of a currency pair and opening sell positions (SELL).
The struggle of bulls (buyers) and bears (sellers) we constantly observe trends on the price charts:
Despite the fact that buyers and sellers use the same technical analysis tools - there is no uniquely bullish or bearish strategy for binary options, trends are traded separately. If on intraday deals traders practice opening both BUY and SELL, the psychological factor begins to affect medium and long-term positions. There is a stable stereotype that an uptrend is «correct», and accordingly a downtrend will be «wrong». Let's consider the reasons for this behavior in more detail and start with the bulls:
- The growth of the quote may be caused by macroeconomic factors, such as currency interventions by Central banks or other actions of state regulators to strengthen the national currency. Of course, there is the opposite situation, for example, Bank of Japan is not interested in the growth of the Yen, but the main long on any asset is the large market makers with sufficient funds to "push" the price up in pursuit of their strategic goals;
- It is always easier for a person to accept growth than decline, and the media speculates on this. CNBC made a special comparison of the reaction to the fluctuations of the NASDAQ index: when it fell by 400 points, it did not cause serious interest, and the growth by the same amount led to a storm of delight. Market makers are very interested in experts convincing small players that there is no fall, but only a «bearish correction» on exact binary options strategy. It is easier to convince them to buy at a speculative price than to remove them from the market in one strong move.
The presence of big players has a positive side: there is a lot of big money in the market; in general, bullish movements are longer and more predictable. It is all learn binary options trading recommended for beginners to trade during periods of growth.
Let's move on to the bear market, where a characteristic feature is immediately visible - despite the general decline, there are no sharp price impulses and corrections. Bull traders who are accustomed to the rush of purchases and sharp price fluctuations are experiencing big problems - they simply do not have enough indicator signals to open trades:
- There are periods of almost complete absence of volatility. Bears are well aware of this "dead zone" during the European session, which occurs between 12-14 hours, when the big players take a break for lunch and analyze the current situation. The market begins to give false live trading signals; the movements are short-lived and small in amplitude. And if such a situation has been observed for several weeks, then it is clear why the downtrend is considered depressive.
- The activity of investors and market makers is constantly decreasing. Almost all small buyers are removed from the market, market volumes are falling and, as a result, technical analysis starts to work poorly: support / oversold levels are broken through by any speculative movement, overbought/oversold oscillators (MACD, RSI and others) are stuck below the oversold level and do not make it clear where the trend will end. It seems that the “bottom” is found, the purchase is open, and the price continues to decline after a pause.
It follows from the above that trading on the side of bears is not for beginners, but the ability to trade is a mandatory skill of a professional binary options trader. Crisis phenomena in the world economy have become regular and increasingly the confrontation of «bulls and bears» ends not in favor of buyers.
Summarize and recommendations use …
- This was mentioned above, but it will be useful to remind you: if you are a beginner, trade bullish trends, this will protect you from many mistakes. An increase in price indicates a big interest, and it is always safer to follow the big players;
- It is recommended for intraday traders and scalpers to be in the trend with the bulls. Constant growth can give 10-15 good entry points per day, which never happens on a bearish trend;
- Bulls and bears in the currency market can be the same market makers, only by increasing the timeframe to four hours (H4) and higher, you can understand that the market is really falling. Money management should be tougher, profits in a bear market accumulate much more slowly: you need to exercise restraint on binary options Forex signals, do not close the deal ahead of time.