If you’re new to the world of foreign exchange trading, you’ve likely come across the terms “bullish” and “bearish” on several occasions. These are evocative words given their obvious connections to wild, angry animals – but they can also be a bit mystifying, too, especially when they’re placed in the context of price charts and shapes on graphs. This article will cut through the noise and provide some clear explanations as to what bullish and bearish rectangles are – and how you can use them as part of your foreign exchange trading strategy.
Bull vs. bear
Before moving on to look at rectangles, it’s first worth taking the time to think about what the terms “bull” and “bear” themselves mean in a trading context. A bullish trading environment is one in which the wider market or a particular currency is rising in value. A trader might be referred to as “bullish” if they attempt to make the most of this by speculating that the momentum will continue in that upward direction.
A bearish trading environment is the opposite and reflects a drop in value. Traders may then begin to speculate that values will continue to drop, in which case they’d be labeled bearish as well. It’s worth reading up on these terms and using relevant educational resources offered by brokers and others to expand your trading vocabulary – and by reading this Currencies Direct review and reviews of other brokers, you can find out which brokers offer the right educational opportunities for your needs.
The role of the rectangle
The bull and bear rectangles are shapes that appear on a price chart, which could indicate that things are about to go one way or the other in the markets. When prices are plotted on a chart, they are bounded by what are known as “support and resistance” levels: these are two parallel horizontal lines that are used to mark the expected upper and lower points of a currency’s price movement. Sometimes, there’s a period of back and forth on a price chart in which the vertical lines indicating price drops and rises, primarily in the process of consolidation; when two of these lines emerge, they form the left and right walls of the “rectangle.”
If the overall trend is downward, you’ve got a bearish rectangle – and when it’s up, you’ve got a bullish one. You could consider using this information to make a decision on which direction to speculate. There are lots of other such indicators available, though, and the best traders use these rectangles alongside others to get the full picture.
As this article has made clear, the terms “bullish” and “bearish” are important ones to understand if you’re planning to immerse yourself in the world of foreign exchange trading. Understanding what bullish and bearish rectangles are and how they can be used to make the right trading decisions is also a smart move – and one that could even help you increase your trading profits.