For six weeks now, the indices – especially the S&P 500 – have been sliding lower. Sure, there have been rallies, but they have been short-lived. Sustained high volatility has made trading difficult at best. Sharp drops have rattled nerves. Continued geopolitical and economic uncertainty have caused sleepless nights. It’s been a lot, which why I decided to round up the best bear market trading tips I’ve published over the years.
These are the same strategies I use to protect (and maybe grow) my portfolio.
My best bear market trading tips
Keep in mind that the name of the game is to protect your wealth. Bear market cycles are rather short historically. They need to run their course, so don’t fight it.
Take a break
I have written about this often, but it’s worth repeating: Take a break from trading as needed.
I am known to take breaks in both bull or bear markets. Sharp moves higher and lower in a bear market are exhausting, and eventually, you are worn out. I’ve seen countless players throw in the towel due to fatigue from waiting endlessly for a trend to be established or just turn.
Give yourself a break before the market breaks you. It’s not easy, and at times you will feel left behind, but I doubt you will be permanently scarred by it. In fact, a break is refreshing, and it allows you to come back into the game re-energized.
Play the market both ways
If you’re up for it, play the market both ways. This can dampen portfolio volatility and increase your chances of banking wins.
Most of us are conditioned to only play the bull side. Throw out that playbook. I come to the table each day looking for opportunities on both sides of the trade, regardless of where the trend is. Stocks do not rise every single day, even in a bull market. Stay agnostic and look for opportunities with an open mind. You’ll be more likely to find ideas on both sides.
Ignore calls for the bottom
Every single time markets make another turn lower, you can guarantee that a talking head somewhere declares it to be the bottom. If only it were that easy. You won’t know when a bottom has been reached until a new up trend is confirmed.
Be careful trading rallies
We’ve seen our share of rallies over the past several weeks. They can be traded, but they require a great deal of caution, luck, and timing. Be careful when trading a rally and remember to never trade more than you can afford to lose (one of my top risk management strategies).
Always have index puts working
I always carry protection via index puts, whether I have long calls or short puts in my portfolio. Bear markets are notorious for their volatility, and holding some protection allows me sleep much better at night. When I don’t have protection working for me, I’m worried.
During the past few weeks, our Explosive Options portfolio has had some nice gains thanks to index puts. They weren’t monster winners, but that’s OK. Modest wins are better than the alternative.
Remember, the goal here is to reduce portfolio volatility. Index puts may not allow you to max out an up day, but you will certainly reduce losses on a down day.
Want more bear trading tips?
If you’d like more guidance, definitely check out our ebook, How to Manage Your Trading During a Bear Market. It’s not only filled with all my tips and strategies but also costly mistakes to avoid.