Investing in a bear market doesn’t need to be daunting. The market trades in cycles. Bear markets will come and go. The panic that ensues when investors believe that a bear market is starting drives prices down. There’s no magic formula to knowing when a bearish market begins. Sometimes it’s just a market correction. The key is knowing what a bear market is. A bear market a market where prices have fallen by at least 20% over a period of time. This particular market can last from 3 months to 3 years or more.
Investing in a Bear Market
- Strategy helps bring success when investing in a bear market. Bear markets may seem scary to traders and investors. The typical investor wants a bull market because of their strategy. When holding a stock long term or even swing trading, you want price to go up. This is how you profit. When a bear market occurs, then you have the potential to lose those profits.
However, if you learn how to trade and where to invest in a bear market then you can profit not matter the market conditions.
The economy is usually down and sluggish. There aren’t new jobs being created and the overall outlook is pessimistic. Think about it. Would you want to be bullish in an economy that had no growth?
As pessimism sets in, investors start to panic. They begin to panic sell their current investments trying to cap their losses. This, in turn, causes prices to fall even lower.
The best thing is to prepare for a bear market ahead of time instead of waiting until you’re in the middle of it. You wouldn’t wait to prepare for a hurricane until it was hitting you would you?
Look for Bearish Patterns
There’s no crystal ball that you can look to for investing in a bear market. However there are patterns. Patterns such as descending triangle patterns or triple top patterns give you clues.
Look at the S&P and the futures. What patterns do you see there? Stocks, especially the large cap ones, follow those indexes. If the futures are down, stocks will follow.
However patterns break down all the time. News can and will affect how the market moves. Look at the large patterns and the small patterns. Shooting star patterns or evening star patterns can help you to decide what type of trade to place; especially with day trading strategies.
If you see bearish patterns on the charts of the major indexes, especially very near support or resistance, beware. If price breaks down out of support, prices will fall.
Did you know that once a bear market has acknowledged by the experts, the worst may have passed? Even when the economy is strong the market can be heading into a bearish bias.
Trade the candlesticks patterns. Then you won’t have to keep guessing.
Be Smart About It
Investing in a bear market can wreak havoc on your emotions. However if you put a good strategy in place, you can still profit. You can make money even as price falls (bullish vs bearish and trading for profit in any market).
Look for the sectors that still trade well no matter what. People turn to gold stocks or healthcare. The sectors that always have a consistent stream of income not matter what because people still need them.
Food and beverage companies can be good to invest in since people still need to eat. Utility companies can be a slow grind up. People still want their cable. Those companies may not take off during a recession but they are steady. People look into cashing out their investments and waiting out the bear market as well as investing into bonds. Trading options or short selling are other strategies you can use to profit in a bear market (learn how to short in bear markets).
There are many opportunities to profit in a bear market. You may find you want to use swing trading techniques to profit instead of holding long term.
You may decide short selling is the only way to go during a bear market. Pick a strategy that you can work with and be smart about it. Don’t let fear or greed control the way you trade. Otherwise you’ll be worse off then letting your investments take its course.
Bottom Line: Investing in a Bear Market
Investing in a bear market doesn’t need to be daunting or scary. There are all kinds of ways to make money in the stock market when it’s up, down or trading sideways.
Not every trade and investment will work out. Sometimes they go against you. Take your losses without getting emotional and move on. Just like you lost on a trade, you’ll win too.