How to survive a Bear Market
There are different indicators that can lead to a sign that there might be a bear market ahead, such as low earnings growth, high market valuations and rising interest rates. A bear market can be shown in an average of 3.5 years. Just to give a quick insight, a bear market refers to a market-wide decline, where at least 15-20% of stock prices are coupled with hopeless sentiment about the market. If, and when this happens, fighting against it can be dangerous. Together we will go through some simple advice on how to get through a bear market.
• In the previous article “The psychology of Trading and Buy/Sell Signals” we mentioned that a great number of errors that traders and investors do are emotional ones. If you want to profit, the first thing to do is stop buying or selling without a strong reason. Something that seems like a huge catastrophe, one day it might be remembered as nothing. If investors decides to sell their stocks/currency at undervalued levels during bear market, their losses will continue permanently, because these losses are really hard to recover this way leading to a huge damage, to the long-term performance. This is a good reason for investors to stay calm during bear markets, and stay away from selling their stock at the wrong time.
• The analyzes of previous downturns have shown that half of the value that was lost tends to recover, and for the rest of it takes longer. That's why one of the best things to do during a bear market is to play dead. This means securing a large portion of your portfolio in money market such as certificates of deposit. Being able to do that will save you from troubles.
• Every investor has their way of trading, therefore the situation is different for everyone. But having the right allocation strategy, will help you avoid negative effects which come from keeping all your stocks/currency in one place.
• You are probably familiar with the phrase that investors should never invest money they can't afford to lose, that is one of the golden rules. This is especially useful, when it comes to bear market, remember they can be very destructive.
• Every bear market brings along an opportunity to profit on the short side of the market. It is all about knowing what you're looking for. Underpriced, is one of the descriptions of stocks/currency during bear market. This makes the valuations of good companies get down, and bring buying opportunities for value investors.
• If you want to profit from the bottom of the market you should invest before the market hits rock bottom, and stay in it. Investing regularly pays dividends, and helps you smooth out the downturns in the market over the longer term.
• Based on the history the first stocks to come out of a downturn are found in five sectors: consumer durables, industrials, materials, financial and information. Property is the last sector to come out of a downturn.
• As far as for cryptocurrencies and fiat currencies, firstly do your own researches to find out, which of them usually comes out of a downturn first. Afterward based on the history of past data, use those information to invest, during the bear market.