Beating The Bear Market
When some people hear the words bear market, they get an unpleasant feeling in the pit of their stomachs. The term bear market conjures up visions of crashes and the end of all the hard work that many investors have put in over the years. First, crashes are rare, and second, there is no reason that all the hard work you have done has to be thrown aside just because the market has shifted gears. By focusing and putting in the work, you can beat the bear market and keep yourself ready to take advantage when the market turns back around.
It’s easy to get complacent when you are trading the stock market trends, but it’s also very dangerous. When a bull market is present, the market moves in a linear fashion, and seems almost “easy”. Of course, trading isn’t easy in any phase, but that along with other misconceptions is what catches most market participants by the throat when a bear market takes hold.
Contrary to what some gurus will tell you, a bear market is not just an inverse of a bull market. As a matter of fact, it isn’t even close. The stock market trends that exist inside of a bear market are juiced with volatility, making it much harder to navigate, and much more riskier for those that fly by the seat of their pants. Historical stock market trends have shown that when a bear market has taken hold, that the chance of getting shaken out of your positions are much greater. This makes it much harder to just hold and pray that a position will come back and give you the opportunity to get out alive. This doesn't mean that a bear market have to be a bad thing. It’s quite the contrary actually.
As I stated earlier, a bear market juices the stock market trends with volatility. Volatility offers opportunity, as long as you understand it’s dangers and benefits. Increased volatility will often time lead to overshoots in support and resistance levels, making stop loss placement more of an art than a science. A good way of reducing risk is to lower trading size and widen your stop losses. This allows you to act like a professional, which means you respect risk first and foremost. Start by designing a money management plan just for bear market stock trading, and have that available for you to reference when putting
on positions. Develop the plan first by using your normal stop loss levels, and then add an extra pre-determined percentage to give the position some more travel room. Make sure that no matter what, you are not violating your maximum risk per trade, and don’t let ANYONE talk you into thinking that this market is different and that you need to up your risk threshold to take advantage of the opportunity. That’s just a way for scam artists to pick your pockets by selling overpriced, over hyped, under delivered lists and memberships.
Some people will tell you that the best way to trade the stock market trends during a bear market is to stay out altogether and wait for the bear market to pass. I don’t agree, and feel that there is plenty of opportunity to make money in a bear market as long as you recognize and exploit the stock market trends that dominate it. Polish your skills and learn how to handle any market environment, so that you become a well-rounded trader, not one that relies on luck, super guru scam artists, gut feel or dreams.
There is no telling how long a bear market will last, and that makes staying completely out of the market a challenge in and of itself. If you continually monitor the bear market, and learn the stock market trends that flourish in them, you will remain sharp and ready to take advantage when the ship turns around. You will then welcome the next bear market with open arms.