The first half of 2022 has come to a close, and the bear market rages on. If you’re looking for tips for trading a bear market, I got ’em for you.
You don’t want to end up like passive investors (who are holding index funds and mutual funds). They are sporting solid losses of 20% or more (after some stellar gains over the past several years). As we all know, it doesn’t take long to lose wealth. As the saying goes: It’s like taking the escalator up and the window down.
While losses are part of the game of investing and trading, it is possible to sidestep the bigger losses and even produce some wins along the way. The answer is yes, and as I have written recently, you need to change your trading strategy and then stick with it. Like a bull market, a bear market has no end date. They can be short (two months) or long (two years).
Just waiting for something positive to happen is a waste of time and energy. And then there’s the opportunity cost of missing out on the chance to make money or preserve capital.
4 tips for trading a bear market
In short: Wait patiently for the opportunities!
Sell the rips, avoid buying the dips. Strong rallies are opportunities to unload stocks. Big institutions have done this and continue to do it, why not you?
Pay more attention than ever to the charts/technicals, but with less emphasis on sentiment. In a bull market, sentiment is a contrarian indicator. In a bear market, sentiment is usually correct.
Go with the trend of the market. If it’s down, embrace it and don’t worry about missing out on the other side of the trade. Bearish trends can be very profitable if you decide to play it.
Keep your trades on a tight leash, take smaller profits, and move your capital around. Don’t be afraid to have a high cash balance at all times.
Thankfully, bear markets are rare, but they happen and you need to be prepared. If you play this bear market right, you’ll be more than ready for the next bull run.