If you are new, or relatively so, to the world of trading, you may not exactly understand the different strategies used for trading in a Bear Market or why they are different from strategies used in a bull market. Therefore, before looking at the best trading strategy for a Bear Market, let’s take a closer look at just why it’s labelled as a Bear Market and what that should tell us about our trading strategies.
What Exactly Is a Bear Market?
When you stop to think about it, there are two markets you have probably heard of. That would be a Bear Market and a bull market. Think about this in terms of the animals for which they are labelled. A bear is reclusive in the winter months and is known to hibernate. A bull, on the other hand, will always charge forward when they quite literally see red. In terms of the market, a Bear Market is when prices have dropped 20% or more and a Bull Market is when prices rise for an extended period of time. So then, with this understanding, should you hibernate during a Bear Market? The answer to that isn’t quite as cut-and-dry as you might imagine.
Trading in a Bear Market
When you look at online trading in Kenya, for example, you might be advised that the best trading strategy in this undisputed Bear Market would be to take a short selling position or perhaps to take profits out regularly. This is good advice, sound advice and an undisputed way to trade in a Bear Market. However, there are some traders who have made a small fortune with opposite trading strategies. They don’t sell short and they don’t take out profits they could be reinvesting. This doesn’t mean that it’s wise to do, it just means that you need to find your own comfort level when trading in any market, Bull or Bear.
A Brief Overview of Trading the Stock Market
The Golden Rule of Trading
Actually, there is a ‘golden rule’ when it comes to trading much like there is when it comes to gambling. In fact, isn’t trading much like gambling? You hedge your ‘bets’ on the odds that your underlying currency, commodity, or stock, for example, will rise in the near future. Isn’t it just like the roll of the dice? That lucky 7 hasn’t hit recently, so aren’t the odds favourable to hitting the winning 7? Therefore, the very best strategy you can follow during a Bear Market is based on the Golden Rule. That would be, if you can’t afford to ‘gamble’ that amount, don’t do it. Trade what you can afford to invest that won’t break the bank. Even seasoned traders continue trading in extreme Bear Markets, they just follow the Golden Rule as it pertains to their personal finances.
Yes, do trade during a Bear Market and don’t hibernate waiting for the sun to come out again. Continue trading but whether you sell short or reinvest those profits, it’s all about what works for you. What is the best trading strategy during a Bear Market? The bottom line is to trade from a position of strength. Follow the global financial news and go from there. That’s your position of strength so it is the best trading strategy for you.
