Understanding key trading terms is an essential skill of any successful binary options trader. This article explains four of the most important terms – bullish and bearish, and dovish and hawkish.

  • What does Bullish and Bearish mean?
  • How can I trade Bullish and Bearish with binary options?
  • What do Dovish and Hawkish mean?
  • How can I trade Dovish and Hawkish with binary options?

With this knowledge, you will understand what financial experts mean when they talk about these terms and how you can use these terms to trade – and the sentiments involved – with binary options .

 

 

What does Bullish and Bearish mean?

The terms rise and fall determine whether traders think the price of an asset will rise or fall in the future. They are also used in hindsight to describe bullish or bearish markets. They are common transaction terms in the written press.

  • Bullish:  When traders are optimistic about an asset, they believe its price will increase. A bull market has a rising price.
  • Bearish:  When traders are bearish on an asset, they believe its price will fall. Bear markets are bearish.

After the 2008 financial crisis, the market fell. The Dow Jones lost more than half of its points, and stock indexes around the world suffered similarly tough losses. Since then, the market has rallied again, rallying to new record highs.

How can I exchange Bullish and Bearish affection?

For binary options traders, rise and fall are important terms. The simplest way to connect terms to your transaction is:

  • Invest in bulls during bull markets and when traders are bullish on an asset.
  • Invest in falling prices during bear markets and when traders are bearish on an asset.

There are a few ways that you can do this:

  1. Read news. News is a good source to understand how traders feel. There are many interviews with traders and even specialized trading magazines, but you can also read the regular news and connect the dots for yourself. When a company faces legal battles, traders may be discounting; When a company hits record profits, traders can raise prices.
  2. Subscribe to a newsletter. There are special newsletters that tell you how traders feel about the market. For example, when a major analyst recommends buying or selling a stock (because they are bullish or bearish for that stock), these newsletters will tell you about it. You can then trade the effects of the recommendation with binary options.
  3. Use technical indicators. There are technical indicators such as bull and bear indexes that aggregate information about how traders feel about the market. Some of them use mathematical calculations based on price action, some multi-newsletter reviews and compare positive with negative recommendations. The absolute values of these indicators and their changes over time can tell you where the market is headed.

These sources can tell you how traders feel about the market. There is also another type of technical indicator that measures bullish and bearish momentum indirectly – oscillators.

Technical indicators like the Relative Strength Index (RSI) relate the number of assets bought with assets sold. Their goal is to understand whether money is flowing into an asset or from there. They help you understand how traders feel about an asset without having to ask every trader for yourself.

These indicators also help you understand an ironic shift: when traders are “too”optimistic or “too” bearish, they often end up causing the exact opposite of what they intended. For example, when all traders are bullish on an asset, soon they will all invest in that asset. Now there is a left to buy, but some of the many traders who bought will think about selling. The result is an overabundance of demand, and prices will fall – even though the market is up too strong.

Bullish and bearish are great signs for what you should do. But when everyone is up or down, be careful.

What do Dovish and Hawkish mean?

Dovish and hawk are terms that describe a government’s fiscal policy. Like rising and falling, they depict opposites, but this time opposites of fiscal policy.

  • Dovish: Dovish describes expansionary fiscal policy. Low interest rates make credit cheap and savings uninteresting, growing government debt creates new money. Both effects combine to flood the market with money. Central banks often act dovish when they want to stimulate economic growth but accept the downside of rising inflation.
  • Hawkish: Hawkish describes restrictive fiscal policy. Higher interest rates make credit expensive and savings profitable, reducing government debt reduces the amount of money available. Both effects combine to take money out of the market. Central banks are often hawkish when they want to fight inflation but accept the downside of limiting economic growth.

After the Great Depression of 1923, governments reacted hawkishly, trying to save as much money as possible. After the 2008 crisis, governments reacted mildly, trying to stimulate economic growth through debt and low interest rates.

 

How can I trade Dovish and Hawkish sentiment?

To understand how a hawkish and dovish financial policy affects binary options traders, consider the effects of both policies.

A dovish fiscal policy will push the market up

When the government floods the market with money while also making savings unprofitable, the money has to go somewhere. Many will invest in stocks, which are the only viable investment option left. In addition, the high amount of available funds will increase economic demand, which will allow companies to post record earnings.

Inflation is increasing and the stock market must rise significantly. When the price of bread increases from £1 to £2, the price of a share used to trade at £100 must rise to £200 just to reflect the reduced purchasing power of the currency. For example, when the price of Coke doubles, Coca-Cola’s profits will also double. Even if the company doesn’t become more valuable, the same value will now be represented by a price that is twice as high.

Combined, the stock market should rise as long as dovish fiscal policy persists.

A hawkish fiscal policy limits economic growth

When a government acts hawkish, it causes the opposite effects of dovish fiscal policy. It limits inflation, which means that stocks must rise less to reflect reduced purchasing power. It also takes money out of the market and makes saving more attractive, which is why people are less likely to invest and prefer other investments to stocks. Combined, the stock market loses energy.

Now, none of that is saying that a hawkish fiscal policy will harm the economy or crash markets. In a well-functioning economy, central banks must act to some degree hawkish to prevent uncontrolled inflation, poverty, and other disastrous effects. This is why markets may continue to rise in the hawkish areas of fiscal policy.

How to Trade Hawov and Hawkish Fiscal Policy

The important point is that stock traders will always prefer a hawkish fiscal policy because it pushes stock prices further than dovish fiscal policy. They care about stock prices, not smart policy. In is an important transaction terms.

Binary options traders must understand this connection and trade accordingly. Binary options traders can directly trade the effects of both policies by investing in long-term binary options. These options have expiry dates of many months and years, allowing you to take advantage of fundamental market influences such as fiscal policy.

We recommend using them for market indices instead of individual stocks. Individual stocks are subject to many other influences, for example good or bad governance and technological progress. They may fall despite expansionary fiscal policy. However, the entire market must react to fiscal policy. When the market is flooded with money, the money has to go somewhere. Stock indexes will reflect this inevitable connection and rise.

You can also trade off the market’s reaction to the announcement of changes in the government’s fiscal policy. Most traders understand the link between dovish/hawkish fiscal policy and future stock prices, which is why they immediately invest in anticipation of its impact when a The central bank changes the prime rate or the government plans to earn more debt.

Conclusion

Understanding whether a government is dovish or hawkish allows you to predict what will happen to the market next. Bearish and bullish are terms that describe how markets have behaved in the past, and whether traders expect prices to rise or fall in the future.

Both types of terms are important to binary options traders and can be the foundation of your strategy. Properly understood and properly interpreted, they provide certain predictions and insight into the forces driving the market.