What Does Bullish Mean in Stock Trading?
Being bullish simply means you have a positive sentiment and are optimistic about making money in a market or investment in the near- or long-term. The origin of the term is unclear, but it may have been solidified in a painting by William Holbrook Beard called "The Bulls and Bears in the Market," which is believed to depict the U.S. stock market crash of 1873.
When investors are described as "bullish," they believe the price of a certain stock, a certain market sector or the overall market is moving higher.
Bullish on the Market
Stock markets, like all markets, are driven by information and sentiment. Information gives you a logical basis on which to invest in a particular market, sector or company, but sentiment can also drive investment decisions made by humans, as opposed to computers.
If you are bullish on a market – in other words, you have researched current economic conditions and believe that most of the market is going to rise – you might buy an index mutual fund or index exchange traded fund. This would provide you with investments in a broad range of stocks, which offers the safety of diversification while allowing you to capture market-wide gains.
Bullish on a Sector
You may not be bullish on the entire market, but you might be bullish on a particular sector of the market, such as technology. As a trading strategy in this instance, you could purchase a basket of stocks in technology companies that you have researched and believe will produce gains going forward. Another way to trade a bullish outlook on a particular sector would be, again, to buy shares in a sector fund or ETF. There are also sector rotation strategies you could employ, which generally favor certain sectors over others at different points in the business cycle.
Bullish on a Stock
If you're bullish on a particular company, it's important to research the stock before you put in a buy order. Bullishness can give you the courage to invest in a stock that might make you money, but you should always be careful not to let your positive bullish sentiment get ahead of you. Invest with your head and not with your heart.
Plus you need to know that there are different types of stock analyses, such as fundamental, technical and quantitative. Most beginning investors tend to stick to fundamental analysis, which evaluates the basic elements of a company's financial statement and other data. By looking at factors such as earnings per share, debt ratios and earnings growth forecasts, you can make a more informed decision about whether your bullish sentiment is based on an informed analysis, or runaway enthusiasm.
Bearish on the Market
The opposite of bullish is bearish. Bearish investors are pessimistic about the prospects of a market, sector or stock and will sell out of any bullish positions they may have had before their sentiment changed. There are also investors that are nicknamed perma-bulls and perma-bears, because their outlook doesn't change with the market.
Wayne Marks has more than 20 years of experience in finance, education, public relations and marketing in both New York City and Washington, D.C. He has worked for corporate and nonprofit organizations and holds a certificate from the Wharton School of Business.