The Bear Market

The bear market is a term used by financial traders and analysts alike to describe a trading instrument that is undergoing a consistent and continuous decline. This instrument can be anything that is publicly traded including shares of stock, commodity contracts, and, of course, currency pairs.

Instruments can’t just go on a decline, however, in order to be named as entering a bear market. The drop in value must be both sustained over a long period of time and significant enough in degree that it starts to promote pessimism. By combining these two characteristics together, a currency pair, for example, starts to generate negative market sentiments which can spark a selling spree among investors, pressuring it to go even lower until it hits rock bottom. At its worst, a bear market can completely ruin an investment for those who choose to hold on to it for too long.

The good news is that, in the Forex, bear markets are not that different from any other time of the year in terms of profit opportunities. Remember that instead of buying or selling individual pairs, currency pairs are the ones being traded. This means that if one side of the pair starts to enter a bear market, its counterpart could be headed towards a bull or rising market.

Because of this balancing act, traders can always open a position on the Forex even if market sentiments have made a turn to the negative. As long as currencies are moving in any direction, the potential for profits will not be compromised.