Are you losing money in the stock market due to the current bear market? Is your portfolio being reduced drastically losing making a big loss in your stocks? Contemplating to sell your stocks if the market falls further? What if I told you that in the bear market you can make money too?
Trading the stock market is a very good way to earn money in a bear market. However, if you are one of the late comers who were convinced by the banks/broker to buy stocks during the high of the market, I guess you are seeing a sea of red in your portfolio. Many people were taught to buy the stock but never taught how to sell. I was once a beginner in the stock market also, being taught by books, banks and brokers to buy stocks, only to have my portfolio being in the red during the bear market. Banks and brokers sometimes try to trick you into buying into stocks they are dumping. Once you have bought the stocks they recommended, they are actually dumping their holdings to YOU.
What Is A Bear Market?
A Bear Market is a market condition which many securities prices are falling and there is a widespread panic and pessimism in the economy. A bear market is not a correction, which is a short-term drop (less than 2 months) in the market condition. Bear market spans much longer period. However, it is difficult to tell when the start of the bear market as the market will perceive many huge fall in stocks as a bear market.
Will My Stock Holdings Recover?
Nobody knows when will it recover. But you can buy stocks for investment when they have fallen to a cheap valuation. But you have to wait while your portfolio continues to bleed. The other way is to “hedge” while the bear market dominates. Hedging is a technique that traders/investors use to reduce their risk in the market.
How Do I Make Money From The Bear Market?
[Warning: What I’m going to teach you is an advanced form of trading technique that a stock trader must not attempt with their normal stock broker. Please read the disclaimer.]
You can hedge your holdings by opening a CFD account (Contract For Differences). You can open one with some of the brokers I recommended in Trading 101. Some of the CFD brokers I’ve used in Singapore are CMC Markets and IG Markets. As I trade in Indices, I usually will use also Forex brokers who provide CFD for Indices like FX Primus and AFX Trading.
CFD allows you to short the market, which is to sell first, then buy back, making money from the difference. Some traders make more money shorting the market than buying the market as prices fall faster than it moves up.
An example would be the Dow Jones Index. When in a bull market, you can buy and then sell your holdings once you detect a top in the market. In the case where markets started falling, you can use your CFD to short the market and make a profit to make up for the losses in your stock holdings. So it’s basically the opposite of the action that you normally take. When you are shorting a market, remember to use a CFD account to short and also you must have a stop loss set.
How Do I Short The Market?
Never short the market before? In this video you’ll learn how to send a short order to short the market.
Traders not only make money in a bull market, but they also make money in a bear market. It’s difficult to tell when is the top or bottom, but if you know how to trade both ways, you can protect your portfolio from excessive losses in the bear market.
Want to learn more? Subscribe to our mailing list!