A Few Prosper In Bear Markets
You’ve doubtlessly already heard about the terms ‘bull market’ and ‘bear market’. What do these really mean? A bear market is simply when you have a drop in a large number of share prices over a relatively long period of time. Traders normally talk about a bear market when prices have dropped at least 20% over a period of no less than two months. As more and more people sell their stocks, market prices are pushed down even further.
A bull market is exactly the opposite of a bear. Prices start rising and continue to rise with more than twenty percent for more than two months. Just as pessimism drives a market with dropping prices even further down, optimism drives a bull market upwards.
A bear market should not be confused with a simple market correction. Market corrections happen regularly and usually do not last more than a day or two.
It’s easy to see how one can make money in a bull market. In fact, it’s hard not to make money in such a market. But how can you make money in a declining market?
One way of making money in a declining market is if you could with some degree of accuracy predict when the market has reached its bottom. Then buy a bunch of stock tips. Traders use all sorts of fundamental and technical indicators to assist them with this, but it remains a mammoth task. Many highly experienced traders still often lose money because they incorrectly expected the market to turn around.
Another possibility is to sell stocks short. What you in effect do is to borrow stocks from a brokerage and sell them to a third party at the current high price. Once the price has dropped, you buy them back and refund the brokerage. You should only do this with stocks which are virtually sure to drop in price.
A further course of action is to buy so-called put options, which increase in price when the market declines. Once again you have to be pretty sure it’s actually a bear market which is still in a declining phase, otherwise you will lose the money you risked on the option.
For more on the stock market subscribe to our free WallStreetWindow stock trading weekly newsletter written by Mike Swanson.
Related posts:
- Utilising High Dividend Stocks To Turn A Profit If you are
- Stock Market Technical Analysis-Charting Your Way To Success What cause
- Road To Riches Begins With Penny Stocks If you wis
- The Best Strategies Used With Online Investing and Beginning Investors Mathematic
- The Pros Of Using A Virtual Stock Exchange For New Traders If you are