Bullish and Bearish Zones in Trading
As a trader it is very foolish to be default bullish or bearish. It is better to define conditions under which is seems more likely the bulls or the bears have the edge and then act accordingly. “If the market is above XXX price I tend towards being bullish but if it is below YYY price I tend towards being bearish”.
What are Bullish and Bearish Zones?
It is not a science and different rules apply to different market conditions but as some general rules of thumb;
Bullish Zone
In general bullish zones will be:
On supports (Since buyers may come in at supports)
Above resistances (Since a breakout might have been made showing bulls are stronger).
Caveats are supports will be more prone to breaking in a downtrend (Not as reliable for bull levels but still worth being aware of for risk as a short seller) and sometimes price will appear to have broken a resistance level but really be in a false breakout.
Bearish Zone
In general, bearish zones will be:
Below resistances (As sellers may emerge at resistance levels).
Under supports (As a breakdown might have occurred, indicating bearish strength).
It's important to note that in an uptrend, resistances may become less reliable for identifying bearish levels, but it's still valuable to monitor them for risk management if you are considering long positions. Additionally, be cautious of apparent breakdowns below support levels, as they may sometimes turn out to be false signals.
How Bullish and Bearish Zones are Presented
When we have a strong bias for breakout levels, bullish zones will be presented as blue zones above the current price and red zones below it.
When there’s a strong bias towards possible reversal levels these will be shown in red above the current price or in blue below the current price.
Sentiment Zones are Guides Only
In the times the strategies used work these bull/bear zones can be very useful and during the times they are useful we can use them to do really well in the market. However, these bull/bear zones will always fail when there are false breakouts or big SR levels expected to give reversals break.
These are to be used as a pre-emptive guide. They are not definitive and we need other things happening in the market to support the bull/bear bias. It’s like seasons of the year. In different seasons different weather is much more likely, but it’s always worth looking out the window before deciding what to wear outside.
We need to be able to back up our sentiment zones with trading strategies. Momentum trend based strategies to support breakouts and reversal strategies to support expected big turning levels. These are imperative for us maximizing our profits when it works and also limiting losses when it does not.