Trading has a language of its own. If you're just starting to trade, there are trading terms you'll hear frequently—"long," "short," "bullish," and "bearish"—and you'll need to understand them. These words are important for effectively describing market opinions and when communicating with other traders. Understanding these terms can make it easier to communicate what you are doing and to interpret what another trader is doing or where the market is heading. You'll also be able to understand what the media is saying and what economists believe the overall market and economy are doing.
- Long (or going long) is the trading term for purchasing or owning a stock.
- Bull(ish) is the term for being optimistic about a stock’s price or being long.
- Short(ing) is the trading term for believing a stock price will drop or buying stock to sell later at a higher price.
- Bear(ish) is the term for being pessimistic about a stock’s price, believing the price will drop.
In trading, you buy (or go long on) something if you believe its value will increase. This way, you can sell it for a higher value than you paid for it and reap a profit.
As an example, suppose Suzy goes long 100 shares of ZYZY stock at $10.00, costing her $1,000. Several hours later, she sells the stock for $10.40 per share, collecting $1,040 and making a $40 profit. If the price moves down to $9.50, her long position isn't profitable. If she sells at that point, she'll lose $50 ($0.50 loss x 100 shares).
Bull or Bullish
Being long, or buying, is a bullish action for a trader to take. Put simply, being a bull or having a bullish attitude stems from a belief that an asset will rise in value. To say "he's bullish on gold," for example, means that he believes the price of gold will rise.
Being a bull can represent an opinion or action. Someone who's bullish may go long on the assets they're bullish on. Alternately, they may just have an opinion that the price will rise, but have decided against making any trades based on that opinion. Bullish stances can be extremely specific opinions about a single stock, or they can be broad opinions about the overall market.
The term "bull" or "bullish" comes from the bull, who strikes upward with his horns, thus pushing prices higher.
A bull market is when an investment's price is rising—called an uptrend—typically over a sustained period, such as months or years.
Bullish, bull, and long are used interchangeably. For example, instead of saying "I am long on that stock," a trader may say, "I am bullish on that stock." Both statements indicate this person believes prices will rise.
Short and Shorting
Most people think of trading as buying at a lower price and selling at a higher price, but that's only part of what traders do. Traders can also sell at a high price and buy back at a lower price. Being short, or shorting, is when you sell first in the hopes of being able to buy the asset back at a lower price later.
In other words, the financial markets allow traders to buy then sell, or sell then buy. This is essentially borrowing the asset, selling it, then buying it back cheaper for a profit. If you've done this, then you're short the asset. You'll also hear the term short-selling. This is also called shorting.
In the futures and forex market, you can short any time you wish. In the stock market, there are more restrictions on which stocks can be shorted and when. No matter the market, if you hear someone say they are shorting something, it means they believe the price will go down.
Assume Suzy shorts 100 shares of ZYZY stock at $10.00. Since she sold first, she'll receive $1,000 into her trading account, but her account will show negative 100 shares. The negative share balance must be brought back to zero at some point by buying back the 100 shares.
An hour later, she buys 100 shares back for $9.60 per share at a total cost of $960. Since she initially received $1,000, buying the shares back for only $960 gives her a $40 profit. However, if the price moves up to $10.50, she has lost $50 ($0.50 extra cost x 100 shares).
Bear or Bearish
Being bearish is the exact opposite of being bullish—it's the belief that the price of an asset will fall. To say "he's bearish on stocks" means he believes the price of stocks will decline in value.
Just like with bullish opinions, a person may hold bearish beliefs about a specific company or about a broad range of assets. A trader with bearish beliefs may choose to act on them or not. If the trader does act, they may sell shares they currently own, or they may go short.
The term "bear" or "bearish" comes from the bear, who strikes downward with its paws, thus pushing prices down.
A bear market occurs when an investment's price is falling—called a downtrend—typically over a sustained period such as months or years. Acting on a bearish or bullish opinion should only be done based on a well-defined and tested trading strategy.
The Bottom Line
Every trader should understand what long, short, bullish, and bearish mean. These terms are used frequently in financial news, trading articles, market analysis, and conversations. They are also used in all markets and on all time frames. Regardless of whether you're day trading or investing, trading soybeans or speculating on foreign currencies, you will read or hear one or all of these terms every time you check your portfolio or talk about investing.
Frequently Asked Questions (FAQs)
What is a bullish engulfing pattern?
A bullish engulfing pattern is when a white, engulfing candlestick follows a black candlestick. A candlestick is a price chart for securities that shows the high, low, opening, and closing prices for a specific period (usually one day). A black candlestick is when a security closes below the opening price and the price at which it previously closed. A white candlestick is when a security closes at a higher level than where it opened. It shows a bullish, or upward, trend.
What is a bullish reversal?
A bullish reversal is when a security starts to trend upward when it was previously trending downward, or in a bearish direction. A reversal indicates a larger trend and is different from a pullback, which is a counter-move within a trend that doesn't change the overall trajectory of the trend.