A trader always thinks distinctively because trading makes them so. It’s not something like vidi vici veni, nor a stable momentum that follows a formula. A bear market is one of the evident reasons you will have to think for tomorrow and act today accordingly.
It’s always strange at the very first time to discover a bear market, not as ‘a market’ but a temporary situation in the market. Normally, when the stock prices are fallen by 20% or even more, it is a bear market. No investor wants to encounter such a state of affair, but what if?
Why does a bear market occur?
It’s not a surprise or an accident but obvious to fall upon. On average, bear markets occur with an interval of nearly 3 and a half years. Once you understand the difference between bearish vs. bullish, you’ll get the thing more easily.
Interestingly, there is no way to flee from a bear market. Therefore, it is wise to prepare for it. Uncertainty in the market, lack of confidence of the investors, or any of them usually causes a bear market.
A slow or weak economy, pandemics, political crisis, war, shifting in the economy, i.e., offline to online, are the factors behind this 2.
One of the most predominant issues nowadays, Covid19, has caused a drastic disruption and chaos in the economy, and there was a bear market recently. You can check if that is still there. What is more important to know- what a bear market causes.
It brings in-
- Cutting Back
- Closing Locations
- Laying Off
- Unemployment
- Interruption in Growth
- Less Investment
Then what to do?
How to Make Money in a Bear Market?
The answer to how to make money in a bear market is rather inspiring to the new traders coming with more precise and organized planning and success. And, it is possible to profit during.
Quality Stocks
Avoid bad stocks which are not supposed to recover their price after falling. Good stocks can help recover your lost financial stability or robustness and bring back the growth on the right track.
Study Bond Ratings
It is better to avoid bonds with lower ratings during the bear market. The bond with the rating ‘AAA’ indicates to expect more profit where ‘AA’ and ‘A’ rated bonds are suitable for investment.
Good bonds work as successful tools in the long run as while other stocks prices fall, high-rated bonds prices tend to rise.
Diversified Portfolios
Having different portfolios will reduce your risk. Where the performance of some of your stocks is poor, others can cover it and boost your earnings.
Check out for sector rotation. Find your opportunities and use them. The demand for food and beverage, utilities, and other products that cover human needs is more demanded during the depression in the economy. Consider switching associated stocks connected to them while a market is there.
Use Margins Carefully
Utilize the margin facility properly. In a bear market, it is possible to get dividends by acquiring stocks. That will help you have a good return.
So, don’t hesitate to borrow funds from the broker. Yet, remember, it should be the right time and for the right stocks.
Call and put options
Call options give you the facility to buy a stock at a specific rate within a period. On the other hand, input options, you can sell the stocks at a fixed rate. You can get the stocks back at a lower rate later. Get the benefits from call and put options.
Conclusion
A bear market is not good news but an alarm. Study the previous histories of bear markets, do your research. You’ll know how brutal the situation can be. Luckily, the bull market is longer than it. So, be relaxed. Plan carefully as mentioned above and get rid of it.
Wait a bit with patience because good stocks are waiting for you in the next bull market.
Business is all about uncertainty, risk, investment, loss, and profit. Thus, it’s the best idea to proceed. We hope that the article made you think that the bear market is not a reason to stop you but to enhance your business notion.
