Bullish and Bearish Bias in Forex Trading
Is there such a thing as a bullish or bearish bias in Forex trading? Is finding such a bias in your own trades bad? To answer these questions, it is first necessary to get a clear understanding of the terms.
What does "bullish" mean?
In Forex trading, when you are buying a currency pair (going long), expecting it to rise, it is said that you are bullish on that currency pair. Also, when a currency pair rises, that exchange rate movement is said to be bullish.
What does "bearish" mean?
When you are selling a currency pair (going short) in Forex, i.e., anticipating its fall, it is said that you are bearish on the currency pair. When a currency pair declines, such an exchange rate movement is said to be bearish.
What is a bullish bias in Forex?
When the average number of long currency trades is higher than the average number of bearish currency trades due to some fundamental or technical reasons, it is said that the market has a bullish bias. The same is true for your own trade history, if you have significantly more long trades than short ones on one currency pair, then there is a bullish bias in your system.
What is a bearish bias in Forex?
If short currency trades prevail over long currency trades, then such a situation is called a bearish bias. If your Forex trading account statement contains more short trades than long ones when looking at a given currency pair, then you have a bearish bias in your trading.
Is there bullish or bearish bias in Forex?
Stock market is known to have a rather strong bullish bias as it's much easier for investors to buy the stocks rather than sell. Forex, on the other hand, should be completely unbiased, as it is a completely symmetrical market, where a long trade on a currency pair (e.g., EUR/USD) is a short trade on the inverse currency pair (e.g., USD/EUR). However, bearish and bullish biases against specific currencies are commonplace. For example, there is a long-term bearish bias in US dollar as its yearly chart is definitely downward-trending since 1971.
Checking your trading journal for biases can be a good idea to learn if you are predisposed to take one side of trades more than the other side. But you need to be cautious interpreting such a bias.
If your bias coincides with the actual direction of the exchange rate movement during the same period, then there is nothing to worry about. If your bias goes against what was happening in the market, then there is a problem.
Example: if your period of bullish bias on EUR/USD coincides with a period of an uptrend in the currency pair, then it is normal and you should be glad you have such a bias in your trading history. On the other hand, if your bullish bias coincided with a period of decline in the currency pair, that is a reason for worry — you shouldn't let such biases spoil your trading performance.
If you have any comments or questions regarding bearish and bullish biases in Forex trading, you can discuss them in our Forex forum.