A bear market is when the market that is traded by investors is experiencing price declines for a long period of time. The bearish market situation usually explains that the securities prices fall below 20% or even more from their recent highs. The bear market condition happens due to widespread pessimism and negative investor sentiment or psychology.
When an investor is bear trading, this simply means that the investment is made in the instrument whose prices will go down in the future. Traders speculate in the financial market and earn good market returns over their investments. The bear markets generally are linked with the fall in an overall market or indices such as FTSE100, S&P 500, etc. Moreover, traders can invest in individual securities when they experience a decline below 20% for a prolonged period.
The period for the decline in securities price is 2 months or more. These declines in the price of instruments can have other downturns in the market relating to the economy, like a recession. The market is the opposite of a bull market, where the prices in the market rise continuously.
We have understood by now what is a bearish market or bear trading, but to know it better, the article has described how long the bear market lasts, how to trade stocks in a bear market, how to make money in a bear market, and how to invest; in a bear market?
How long does the bear market last?
The bear market is when the prices of the market instruments decline for a long period of time. But, have we ever thought of the duration that it exists for, or how long the bear market lasts to earn good market profits.
If we analyze the trades of the bear market and the duration, then it can be said that the bear market has an average duration or time length of 9.6 months/289 days. In addition, the price decline percent of the bear market is around 35.62%.
So, when an investor is trading in the market, they can know whether it is going to be a bear market or bull market as per the time duration and price fluctuations.
How to trade stocks in a bear market?
Anticipating the bear market is difficult, and knowing how it will impact the stock market and its prices. This is so as the bear market is part of the natural market cycles. Investors can trade in the stocks easily and earn high returns if they understand the trade. To take a position in the stock market and survive the bear market, traders can follow certain techniques.
401(k)
The one essential lesson of the bear market is that if one buys the index funds at regular intervals using the 401(k), they can prosper when the market rebounds. The lesson is based from 2007-2009, and traders using this strategy never knew whether it would end in 2007, 2008, or further, but it gradually ended in 2009. The 401(k) was cut in half by the time it ended; however, the shares that were bought during decline became profitable when the market gained momentum upwards.
In 2015 the traders who had hung on the bear market had high market profits from the cheap shares purchased in decline. So, the 401(k) had the moral that traders should not go all-in at any time but should keep investing in small amounts at set intervals.
Buying short and long Puts
Another trading strategy that stock traders can use to survive bear market conditions is buying short and long puts. The bear market develops for a long period, and for this, traders can buy at inexpensive in short and long term puts. The put option gives the right of 100 shares and has a fixed time length before expiring, and has a specified price for sell in the market. Traders can earn from the bear market using the puts.
The options keep increasing and decreasing in the last percent for stock trading, and thus small put contracts can offset the long stock position loss of the trader. So, traders can put an option to sell when expiration approaches in the market and exercise their rights by giving up the shares.
Other than these, traders can even use the following trading strategies for trading stocks in a bear market:
# Selling naked puts
# Finding stocks that increase in price
How to make money in a bear market and how to invest in a bear market?
The investors of the market have a variety of methods that they can use to invest in a bearish situation. They can make money from their investments and protect their existing position from unnecessary market loss. Below are the trading options that investors can use for investing in a bear market and making money from it.
Short selling
Short selling is the common trading method for profiting in a bear market. An investor can short sell their products or security in many ways like traditional short selling and derivatives. In traditional short selling, the trader can borrow the security from a broker like Investby. Further, they can sell it at the current market price and make money.
In the derivatives, the securities are traded in speculation, and these are taken from the underlying market price. These do not require ownership of the instruments and can be traded to earn profit. Even traders can trade the CFDs with long or short market positions.
Short ETFs
The short exchange-traded funds or inverse ETF help the investors to earn profit from the underlying benchmark decline of the security. There are many derivatives that an investor can trade, mainly futures contracts. In the shorting of an asset, traders buy the market instead of borrowing the asset to sell. Thus, the trader has the ability to earn from the downward market without selling anything short.
So, here when investors think that the stock/asset of the company is going to decline, they can trade in a short stock/asset ETF. When the stock/asset declines, the short ETF will increase, thus earning profit from the trade.
Other than these, traders can invest in a bear market with the following:
Trading in a safe haven
Trading currencies in a speculative way
Going long on the defensive stocks
High-yielding dividend shares
Trading options
Buying at downward market
Conclusion
Bear trading in stocks or other trading instruments, all the investor has to do is use correct trading strategies to analyze the market trend and take appropriate action to make profits. However, it is not that easy to earn from a bear market, and traders need to be alert and experts.
