There are many bear market trading strategies and ways to profit in a bear market! Here are a few ways to survive a bear market!
Disclaimer: There are affiliate links on this page. This means that if you click through and purchase anything, I could possibly make a commission without adding any extra cost to you.
For short term trading, we have had some amazing wins with Rhino Alerts!
Stock market conditions are signaling the start of a bear market – a period of time where the markets and securities are in a significant and prolonged downtrend.
For many new business owners, investors and traders this is likely the first time that they have ever experienced a bear market. Pessimism and fear rule as stocks start to fall more than 20% from their recent highs.
We are still making money trading stocks in this market, which has officially entered bear market territory. The heightened volatility has sidelined some traders, but there’s still money to be made in bear markets, too.
Side note: Did you know that it is called a bear market because of the way a bear attacks its prey? It swipes in a downwards motion with its paws!
Disclosure: Please note that some of the links on this page are affiliate links. This means that we may earn a commission, at no cost to you, if you decide to make a purchase after clicking through the link. Please understand that we have experienced all of these companies, and we recommend them because they are helpful and useful, not because of the small commissions that we receive if you decide to buy something through our links. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals.
Come and join our stock trading alerts Facebook group (How To Make Money With Stock Alerts Services)! We also have a Stock Alerts Reviewed YouTube channel which we hope are helpful. As a new trader it’s helpful to be part of a community of traders so you don’t feel you are battling the market alone!
Here are some the secrets to making money and ways to profit in a bear market.
1. Day Trading to Reduce Your Exposure
Short-term trades are perfect for avoiding devastating global news announcements that cause every stock to sink like lead balloons. Every day there are stocks that get news announcements that causes their stock price to soar – even if the market is down big. We often buy these stocks and take a few percent profit in a few minutes.
By reducing your exposure, you will reduce the chance that you will be wiped out when the Corona Virus rears its ugly head and the world media announces that this is the end of days…
2. Find the Stocks That Are Green on a Red Day (Catalyst Trading)
This is a good way to make money in any market, but it is one of our favorite ways to profit in a bear market.
Often there will be a sector or group of stocks that will buck the trend. These are companies that will BENEFIT from the overall cause of the market declining!
There are always stocks that explode higher due to some catalyst event or some pump by someone.
In our case (2020) the stocks that are bullish as the market declines are companies that are working on the Corona Virus vaccines and test kits. The fear around the Corona virus is a big part of the markets declining, however the leading companies that are related to this are seeing increases of 500% – 1,000% sometimes overnight!
Here is an example of a company that we traded in March. A complete pump to do with the Corona virus vaccine development. Many companies are quickly jumping on this idea that they are vaguely related to Corona Virus test kits or vaccines. Most are just trying to make a quick buck!
First, a company called Inovio Pharmaceuticals, $INO. Just check out the chart below!
Look at what happened on March 3rd to 9th. The stock price went up 400% !!! This was all based on the development rumors of a vaccine for the Corona virus. Do they have a vaccine?
It is all pure speculation and hype that drove this stock up 400% in a few days while the market overall tanked and wiped out many 401K’s.
Day trading small cap stocks is a great strategy to make money in the stock market during a bear market. These stocks are generally less affected than the big blue chip stocks.
3. Honor Your Stop Losses!
Stop losses become even more important in a bear market. I know this from experience of losing tons of money haha!
But seriously, what I do now is set an order when I buy a stock that automatically puts a 3% stop loss in place. If I don’t do this, I will hold my losers hoping that they will just go back up.
This type of stop loss order makes it much easier for me to not take huge losses. The Webull brokerage allows you to do this when you place a buy order as well as set a ‘take profit’ order so that the trade is all automated. Plus, Webull is free with zero commissions.
I am sure that the other brokers allow you to set conditional orders as well. I know that Robinhood does NOT though.
It is also worth trading with smaller position sizes during a bear market.
4. Short Stocks That Are Scams!
Obviously, downwards momentum in the markets will favor stock prices declining. Shorting stocks and betting that they will go down further is a common strategy during these down times.
The best stocks to target are the outright scams – this works even in a bull market. But you can bet that they will fall like rocks when the market gets bearish.
One expert at this is Timothy Sykes. He has made his fortune finding these scam companies and betting against them. Following him on Twitter can be pretty useful if this is one of the ways to profit in a bear market that appeals to you.
When you short shares of a stock, you borrow them from your broker at the current market price. The goal is for the share price to fall, allowing you to buy the borrowed shares back at a lower price — which is where your profit is derived.
But since a short seller has no real “skin in the game” in terms of an equity or cash stake, these bearish positions have to be met with collateral, in the form of deposits into a margin account that are sufficient to cover the risk exposure. Margin requirements will vary, so check with your broker.
And theoretically, the risk on a short sale is unlimited. (Theoretically, because there’s no upper limit to how high a stock can rally — whereas downside potential in a stock is always limited by good old support at zero.)
If the underlying stock declines as expected, you can buy back your borrowed shares to take profits.
However, if the stock rallies, you’ll still need to buy back shares to exit the position — this is how we get the famed “short squeeze rally” on breakout stocks with high short interest.
One way to curb risk on a short sale is by buying out-of-the-money call options on the underlying at a strike price that coincides with your preferred stop-loss level. Buying a call is certainly more expensive than simply using a traditional stop, but in situations where the stock explodes higher, the gains on the call can help to offset losses on the shorted shares.
So shorting a stock is a great way to profit on big rips lower in the share price, but be aware that margin requirements will tie up some of your investing capital for the duration of the trade — an initial deposit, as well as any maintenance margin that may be required if your risk exposure increases.
Plus, losses can add up fast if the stock tears higher unexpectedly, although risk can be curbed by implementing a call option in lieu of a traditional stop.
5. Wait Patiently
Patience is so important, especially as one of the ways to survive a bear market. Sometimes cash is the best position to take! You won’t lose money if you don’t trade – making patience one of the best bear market trading strategies!
Remember, the average bear market is ‘only’ 27 months. The average bull market is 10 years.
6. Join Stock and Options Alerts Services
One of our favorite bear market trading strategies is to join stock picking services.
The reasons that these type of services work well during a bear market is that you are benefiting from a seasoned expert that has most likely traded through bear market before.
Millionaire trading veterans know the best ways to profit in a bear market and you can often use their trade alerts to make fast, short term gains.
Side Note: Come and join our stock trading alerts Facebook group (How To Make Money With Stock Alerts Services)! We also have a Stock Alerts Reviewed YouTube channel which we hope are helpful. As a new trader it’s helpful to be part of a community of traders so you don’t feel you are battling the market alone!
We have been members of many stock alerts services over the years and they have entirely changed the way we trade and our financial situation for the better.
The basic idea is that the expert sends out an email when they are buying a stock or selling a stock. You can follow them and hopefully make some extra money!
7. Buy Put Options
Buying puts can be a great way to minimize your risk and maximize your rewards. This is not one of the bear market strategies that is good for beginners though. You can read more about this in this article if it is something you want to try.
I don’t trade options, so I will be giving this a miss.
There are many great strategies for trading options out there.
Buying a put option gives you the right to sell 100 shares of the underlying asset at the strike price of the option, provided the shares are trading below that strike by the option’s expiration date.
It might seem like a foolproof strategy for a bear market — betting on stocks to decline, in this environment? What could go wrong?
Well, if you don’t know what you’re doing, a lot!
Implied volatility (IV) is a major component of option prices, and when stock market volatility is as high as it is right now, it pushes option prices higher across the board. That means your cost of entry as a put buyer is steeper, as well.
And for what it’s worth, the broadest measure of stock market volatility — the Cboe Volatility Index (VIX) — is higher than it’s been since the 2008 crisis, when it peaked just below 90.
Plus, options lose time value every day until they expire, thanks to the impact of time decay. So, unless you get a strong move by the stock in the right direction, you’re liable to lose money on the trade… even if you’re kinda right on direction.
So even in an all-out bear market, when it seems every stock on the planet is ripping lower, you need to reserve your put trades for high-conviction setups. You can’t just shoot blindfolded!
Conclusions: Ways To Survive a Bear Market
A bear market does not have to be a bad thing. Many people make a fortune during a down market. Making sure that you know the best bear market trading strategies can make all the difference.
Personally, I think that we will see a big bounce in the market when the Corona virus situation clears up. Probably by the end of the year after the election. Historically, markets have been very weak in an election year.
There are many ways to survive a bear market and I hope that this short article will help you to realize that this is NOT the end of the world.
Russell and Maleah
We hope that these bear market trading strategies will help give you some ideas on some of the ways to profit in a bear market. There ARE ways to survive a bear market and thrive even if the world is falling into chaos!