The term bearish is used frequently in different fields of the economic world. It is generally useful to describe the behaviors of individuals who are more pessimistic and confident that a variable will get worse.
We are going to define the two connotations of the term bearish, as a trend in the markets and as a person who takes a certain position in the market.
Within the market analysis, bearish is defined as the trend in markets in which a security presents negative perspectives according to another security or general index. Also, a person who takes part in the market motivated by the conviction that in the future certain securities will be worth less than in the present is considered bearish, therefore, he sells today some securities that he will buy tomorrow at a lower price and at the difference lies the benefit of the operation.
The opposite, by definition, is bullish.
As a trend of the markets
In other words, in the stock or commercial markets, the downward trend is granted to those securities that show a loss of accumulated value during a certain time.
The values never move, except in exceptional cases, in a single direction, but instead form zigzags of rises and falls according to the crossings of supply and demand. In this way, these values are graphically constituting upward or downward trends. Graphically, a downward trend is defined when the maximum and minimum values are forming swings in a downward line. This fact occurs when there is an excess of investors in the market who are selling in the market. That is, they are getting rid of more securities than other investors buy.
To obtain the trend of a value during a limited time, we can observe the quotations of this good day by day until we get a time graph with all the values. Marking a straight line between the periods of time that we want, and between the maximum and minimum value in the considered time, we will obtain the trend.
In markets, trends are relative depending on the time that you want to consider in a study. Thus, a good that begins a year with a value of 20 euros and ends the year with a value of 15, we will say that during the year it has obtained a downward trend. However, if we consider by quarters, it is possible that during the same time course it may have had upward trends. For example, if from September to December of the year it finally went from 13 to 15 euros.
Trends are used in market analysis to make the decision to buy or sell a security, based on its market value and its real value that we consider.
As an investor profile
On the other hand, the term bearish also defines the profile of the investor (broker) who establishes a short-term sales strategy of securities with the vision that they will see their price fall in the future. In this way, anticipating a loss of value and profitability. This strategy is known in financial jargon as the "financial bear" stance. This is due to the parallelism with the hibernation of bears, which wait a while for the long winter to happen while waiting for the arrival of better climates.
In this way, investors with a bearish profile or strategy try to anticipate falls and losses in returns on listed securities and goods and assets. Its purpose is to reduce or skip losses. Also, on the contrary, they get rid in the short term of securities that temporarily lose value due to some circumstantial circumstance. Value that they will recover later, in the long term, thus increasing profits and improving upward profitability on assets.