How to Make Money While Staring Down a Bear

I’m hit with this line all the time from investors and traders: “I can make money in a bull market, that’s easy. What I really want to do is make money in a bear market.”


This is much easier said than done, of course, but you can make money when stocks are going down. You need, however, the understanding, mentality, emotions and proper tactics. Let’s break it down.


There is a difference between a bear market and a bearish market trend. In bear markets, not many investors or traders make money, and most eventually lose money — some even lose a fortune. In a bearish market trend, the timing is usually short term, and the opportunity is big, given sentiment is often tilted to the bullish side — too far so. As a contrarian trader, you want to take the other side of that trade, it’ll pay off eventually and handsomely. Markets flip back and forth violently, and fortunately we have the charts and technicals to help us decipher the direction and momentum.


Markets fall hard and sharp when in a bearish downtrend, but not necessarily in a bear market. My definitions are: A bull market is one that goes up, a bear market is one that does not go up. Notice, I didn’t say down in a bear market. We could go sideways, which is equally frustrating for bulls and bears.

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Back in the 1970s, we had a period of high inflation, high unemployment, slowing growth and high energy prices. The bear market was long and drawn out, but there were times when the market just went sideways. Bears lost money as bets to the downside lost, while bulls lost money after a “rally of hope” fizzled out on many occasions. Frustrating, indeed.


So, rather than trying to make money during a bear market, when one comes around, the best thing you can do is preserve capital, raise cash, protect your gains and look outside the equity markets for new opportunities. Bear markets are not all that long in duration, the last lengthy one was in 2001, lasting until 2003. It was long and painful and pretty much cleared out any remaining bullish sentiment from the “go-go” 90s.


Making money during a bearish market trend, even a short one, can prove far more lucrative. Bull markets tend to have far more opportunities to make money on the downside than do bear markets.

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