The most misunderstood market principle is the zero bulls and bears principle.
Quite often, many attribute bullish price-actions to bulls and bearish ones to bears.
People believe that bulls do not sell or bearish market participants do not buy.
If Dow Jones rises 300 pips after bearish move, most will say that the bulls are back
and they have kicked out the bears.
On the other hand, if NASDAQ 100 index falls fifty pips after a bullish move, everyone
will be saying Oh yes the bears have caused it. However, the reality is far from that.
The truth is that when a financial instrument rises and reaches the ultimate target,
bullish traders take profit. Now how do bullish traders take profit? Well, they sell to
close their bullish position. By doing so, they cause the price to drop fast.
Usually, the first leg or segment of a corrective wave in an uptrend is created by the
bulls. In that instance bulls become bears for a while.
Similarly, bearish traders create the first section of a rally or corrective wave in a
downtrend. Those bearish traders who close their bearish positions at a price target
are buying. Remember that a bearish trader must buy to close a bearish position.
In theory, one can say that 70% of the first leg of a corrective wave is created by the
dominant market participants of the most recent motive, impulse wave or trend.
The zero bulls and bears principle states that both bulls and bears can sell or buy.
It is a misconception to think that bears are only responsible for bearish price-actions
while bulls are purely bullish.
In fact when the long term bullish investors that buy and hold are voluntarily divesting,
the price can continue to decline for many months.
So in a nutshell, that is the zero bulls and bears financial markets principle.
Obviously, there are many implications to that principle that I do not want to discuss
Truly, there are no market participants that purely bullish or bearish. They are effectively
bullish and bearish. That clear understanding of the zero bulls and bears market principle
will help one understand what is going on in this messy market.
I hope you will find this article useful.
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