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4 Trading Strategies to Remember for a Bear Market

As we test bear market levels with the economic uncertainty caused by COVID-19, you can be prepared with these five tips. 

Hopefully, you’ve never had to face an actual bear attack. But if you have, you would have noticed how the bear attacks its opponents by swiping its paws downward. On the other hand, most investors will inevitably experience a bear market. Just like the ursine attack, a bear market signifies an aggressive, downward blow in the markets.

From as far back as last year, financial experts have been predicting an impending bear market because investors have experienced a bull market since 2009. This latest bull market has broken the record for the longest expansion in history. By mid-March, the bull market finally ended its run with the stock market crash, ushering the start of a new bear market.

Usually, traders identify a bear market as a price decline of 20 percent or more from a prior peak over at least a two-month period. This may include a drop in prices for indexes made up of many stocks, such as the S&P 500. While it’s too early to tell exactly how the economy will respond to the coronavirus pandemic, remembering these strategies may help investors in the coming months.


The same advice for a real bear attack can apply to an investor in a bear market: don’t make any sudden moves. While panic-selling when the markets dip may be tempting, you may end up losing out on a potential upturn. COVID-19’s effect on the economy may last over the next few months, but the chances of a long-term or permanent impact for the virus seem to be minimal.On the other hand, racing to buy discounted securities could be equally detrimental. A bear market could bring bargains, but a smart purchase is more than just a low price. Any stocks you buy should reflect an organized investment strategy.


One way to ease apprehension is to find peace of mind with defensive stocks. Conservative choices with a history of stable profits may help investors move forward when the market is moving downward. Utilities, consumer staples, health care stocks, or even apartment real estate investment trusts (REITs) may be less of a risk.

Regardless of your appetite for risk, a bear market is not a great time to try bottom fishing. Companies with lower beta-yields that are less susceptible to overall market risk could be better ideas for your portfolio. Broad market or sector ETFs are a good instrument to help you diversify and provide liquidity if things continue to sour. 


Buying a put option during a bear market can be advantageous when stock prices go down. A put option gives the buyer of the contract the right (but not the obligation) to sell shares of stock at a specific price by a certain date. In this case, if the value of a stock goes down, the buyer profits off the difference. Buying a put also limits your losses, since the most you can lose is the amount of money you put on the contract. 

For traders looking for the thrill of a higher risk, shorting a stock may be another strategy. Shorting involves borrowing shares and buying them back at a later time to cover the position and profiting off the spread. However, unlike buying put options, short selling has an unlimited potential for loss. Because of this, be sure to consider the market volatility and your tolerance for risk.

One final thought to remember is this: a bear market doesn’t have to last forever. The average bear market lasts about a year and a half, according to data collected by the Schwab Center for Financial Research. If history is any indicator, the markets will recover in time and traders can readjust their approach. In the meantime, remembering these strategies may help traders stay optimistic.

“Don’t panic. This, too, shall pass.”

You should consult your own tax, legal and accounting advisors before engaging in any transactions. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.

Nothing in this communication shall constitute a solicitation or recommendation to buy or sell a particular security. Accordingly, no representation or warranty, expressed or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or timeliness of the information contained herein.

Securities are offered through Score Priority Corp. Member FINRA/NFA/SIPC.

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