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How to trade in a bear market



Image: S & P 500, year-to-date. Source: Big Charts


The major stock market indexes fell in 2022. The market ran out of upward momentum after a rally where the stock market hit record highs following a bottom caused by a global pandemic in early 2020. Factors such as rising inflation, supply chain bottlenecks, and the rising US dollar, Europe’s first major war since World War II, added uncertainty to the stock market. The technology sector, which drove the rise in 2020 and 2021, turned down in 2022. The overall tone of the market is shifting from dip buying opportunities to rally selling opportunities. The bull has transformed into a bear.


The bear market has unique characteristics that create opportunities for traders and investors to keep track of market trends. Success in the bear market depends on following rules that can eliminate or reduce the stress and uncertainty of confronting bears.


Rule 1: Weak people tend to be weak


  • Weak stocks tend to be the worst during the bear market.
  • Weaknesses result from poor or good earnings.
  • Strong stocks tend to outperform the market during a bearish trend.


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Rule 2: Trends are your friends


  • The route with the least price resistance reflects market sentiment.
  • Emotions are the wisdom of the crowd.
  • Crowds make wise decisions than individuals.

Rule 3: Hedge avoids panic


  • Panic is often an emotion that leads to loss or loss of opportunity.
  • By hedging your portfolio during periods of instability, you can sleep at night and avoid the urge to panic.
  • Hedges can protect downwards while allowing upward participation.

Rule 4: Don’t choose bottoms or tops


  • It is virtually impossible to choose tops or bottoms in any market.
  • Markets often rise or fall to unreasonable and unreasonable levels.
  • Identifying the top or bottom is all about luck and has little to do with skill.

Rule 5: Understand that there is a cycle in the market


  • The market is cyclical.
  • Cycles create opportunities.
  • Fear and greed evoke dangerous impulses.
  • Accept the cycle by excluding fear and greed from the equation.

Thanks for reading and stay tuned for the next edition of Trader Rundown!



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Stock News Contributor: Tradier Inc.


Source: Stock news

Stock price data is provided 15 minutes behind IEX Cloud. Chart price data is provided by TradingView with a delay of 15 minutes.


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