Investing in bear market is not as easy as trading on the markets that are going up. However, it does not mean you cannot make a good profit when the rice keeps declining. The key challenge here is to find what to invest in a bear market, as there are going to be a few options with solid companies able to stay on the flow.
Additionally, the market rally cannot last for good. Bullish conditions will be inevitably replaced by bearish. The period may last up to several years and it does not mean you are supposed to stay out of profit during a bearish period.
In this article, we will define how to invest in a bearish market and what strategies can bring success.
A trading strategy is the first thing that defines success despite the market conditions. You need to be absolutely sure a chosen modality works. So, it definitely requires proper backtesting before the implementation.
At the same time, when defining where to invest in a bearish market, the option of techniques is not as wide. Here are some most popular strategies that can be applied to market conditions with the asset price continuously declining.
The strategy is quite simple and easy to utilize even for beginners. The main idea relies on periodical purchases of shares over a predefined time frame. The only issue here is that investors need to keep an eye on the price movement all the time. If it goes up, you are supposed to purchase fewer shares but still enter the market with a long position. Oppositely, if the price drops, it is a chance to purchase more shares.
As a rule, this strategy works better with mutual (open-ended) funds, as they are available for purchase in the form of so-called fractional shares. When the majority of traders try to go short, new purchasing opportunities appear. Besides, it is a great chance to purchase assets with a huge discount.
With the pound-cost averaging strategy, it is possible to minimize overall share costs and purchase more of them within a specific schedule. The strategy makes it possible to invest in fundamentals at a lower cost. It is a great chance to find some really good stocks that are currently underpriced because of bearish market conditions.
If you are not in the mood for searching for good stocks with discounts while the market keeps declining, you can try an income investing strategy. It mainly relies on income-producing instruments that can help you improve the cash flow.
Traditionally, investors opt for time-tested and proven assets that include saving bonds, CDs, or treasury securities. If you are ready to take the risk and benefit from higher profits, you may choose more aggressive options with a fixed income. They are as follows:
Sometimes, investors cannot figure out how the market is going to move next. This fact can make beginners feel confused. This is where safety precautions are vital to protect your capital. A good idea is to convert some of your holding assets into real cash (at least for a while). Such actions can increase the level of margin safety.
Whatever you do, disciplined investing is the key to success. A bearish market does not mean the end of the world. Sooner or later, a bullish market is about to come. So, you need to be well-prepared for that and keep your head cool.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.