How to Make the Best of a Bear Market?

Bear market is the situation when stock prices go down. Most of the traders in this situation get hyper and sell out their stock haphazardly due to the fear of increased losses. If you use right techniques and understand the market well, there are still some options to make the best of a bear market and mitigate the risk. Taking a position in the bear market is actually a two-step process. First, you need to identify the market from a temporary blip and then come out with the strategies to make the best of the bear market. If you have good knowledge of basic characteristics of a bear market, you can easily take right position. If you are thinking how to do it, here is the guide to help you take a position and make profits from a bear market. Though the common belief about the bear effect is negative returns consistently for three months, but this is not applicable for every situation. There have been cases where many countries have performed well even in the bear market. Russia, Brazil, and the Middle East are the examples where share correction in the oil prices caused bear effect. You can avoid the loss of a bear effect only when you can identify it and make strategies to tackle it. So here are some signals to help you identify a bear market. Check the 3-step process You can determine a bear market by carving out the 3 phases. In a classic bear market, the sharp bounce back is noticed after the sharp crash. After this, the volatility down and gradually the market grinds down. Liquidity and leadership are the main powers The sudden death of the liquidity in the market also causes a bear market. You can get to know about it by keeping an eye on the rate hikes and the controls. Consonant negative breadth is a giveaway Regular outnumbering of rising stocks by the declining stocks is the reason of negative breadth. You can easily notice the trend in the large and mid-caps. With liquidity and leadership loss, negative breadth perfectly defines the bear market. Tips to trade and manage a bear effect Sell on rises: The first rule to make profits in the bear market is to sell on rises. Further, you should not buy on dips. Be careful when trading in options: Many stock traders resort to options trading in the bear market. But you need to be very careful while playing the options game. You might get lured by the call options due to their cheap prices, but these might actually be useless. Same is the case with the put options. These might sound interesting and profitable due to good prices, but there are huge chances that these are overpriced. Watch your actions: Bear market is not in your control, but what you do is in your hands. Make sure you don’t purchase too much and try to sell a higher call to cut the cost of holding shares. Restructure your portfolio and replace the high beta stocks with the defensives. Final Thoughts: Predicting bear markets might be easy but it is really difficult to act rationally in this market. It is the time to check your patience, strength and belief. Surviving through this market is hard but not impossible. Try for the best bargains with patience and grab the opportunity. If you don’t trust equity