Time To Act: How Traders Invest During a Bear Market

Time To Act: How Traders Invest During a Bear Market

A bear market is usually associated with a certain period of market downfall and negative performance of the global economy. So, how traders are acting during a bear market?

First of all, the market is considered bearish once stock prices decline around 20% or more when compared with the latest rates. The best trading approaches, by contrast, have to do with the investor’s risk tolerance, investment time-frame, and his final goal.

FinanCollegeteam aims to equip our readers with essential trading strategies that become crucial while the global economy is in recession amid the coronavirus outbreak. Medical authorities claim that the only available treatment is containment. So, let’s see how we can treat the bearish market during numerous peaks and valleys.

Useful Tips

There are several useful strategies that may work efficiently during a bear market:

  • Cashing out approach
  • Purchasing defensive stocks—large-cap, stable, and solid companies
  • Go hunting: profit from dropping prices to spot strong stocks

Let’s take a closer look at the “Cashing Out” strategy.

Selling Out All Positions Strategy

Selling out strategy is thought to be one of the most secured trading approaches, even though it is rather extreme. This strategy implies a total selling of all of your holdings in favor of keeping cash or investing in safe financial instruments, such as government bonds. Following this strategy, a trader can reduce the harmful impact of the stock market and exclude the influence of the furious bear. That being mentioned, it is crucial to time the market with precision, while the majority of novice investors fail to do so. A total cash out, also called capitulation, sometimes makes traders overlook the market’s rebound.

Those traders who wish to take advantage of a falling market, should consider short positions, short-selling, purchasing shares of inverse exchange traded funds (ETFs), or investing in speculative put options. All of these investments are supposed to increase as the market goes down. It should be emphasized that these strategies involve their own risks and restrictions.

To be continued!  Stay tuned and pick more bear market strategies.