Stock Market Trends In A Bear Market

A bear market does not act just the opposite of a bull market. While having a grasp of stock market trends is useful in both a bull and bear market, there are tendencies and intricacies that are native just to a bear market, and need to be understood in order to get the most out of the bear market, and not get mauled in the process. 

History tells us that the greatest one day rallies in the Dow all happened during a bear market. While that may seem strange at first, it’s important to understand how the market acts during a bear market. First, there is an increase in volatility. Volatility is increased price range coupled with increased volume. This makes it more difficult to just ride out the storm, and hope the market will forgive you and your losing positions. Volatility means your gains can be juiced if the market can move in your favor if you are on the right side, but it also exponentially increases your risk, and should be respected at all times. Failure to do so can make trading a bear market your last.

Second, you have to be sure you are setting up layers of support and resistance when you are setting stop losses. Following the stock market trends is one thing, but in a bear market, due to the aforementioned increase in volatility, support and resistance levels can be easily overshot, leading to frustration and aggravation form stop losses that are too tight. This means that you will have to widen your stop losses in a bear market. This also means that in order to stay within your risk parameters, it’s not a bad idea to think about lowering your size.

Third, a bear market brings with it a lot of opportunity, which means you may be trading more than usual. Now for those that don’t sell short or trade the inverse ETFs, you will likely be focused on preservation of capital, which is a choice you have to make. However, there is plenty of opportunity in a bear market to take advantage of short squeezes, and rallies within the bigger trend. This is where your stock trading skills needs to be put to good use. Since the market will be moving in batches when these do occur, there may be a challenge with over allotting your amount of positions. In order to keep this at bay, make sure you are grouping your stocks into their proper sectors. This way you are aware of what is moving and how you can partake in the move without having to own everything on your watch list or that’s being mentioned on TV or in the financial journals and websites.

Finally, remember that while a bear market usually doesn’t last very long, it can be extremely damaging and disruptive to your portfolio if you aren't careful. If you don’t have the time to learn about how to protect your money, seek the advice of a professional. This way, you will be able to educate yourself at your own pace, while letting a professional handle the turbulence that a bear market can bring.

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