Last week we were talking about bullish market and what dangers it possesses. But its counterpart – bear market has far more obvious dangers and threats. Of course, bears and bulls are exchanging their place in the markets and sooner or later we are going to have to meet bears face-to-face. That means that we are going to either leave trading until they leave [which can take years] or trade right through the trend.
And here is where the question comes in – what to do in the bear market?
So, here are top 5 things that you need to do in a bear market.
1. Take up financial adviser.
2. Do not panic.
3. Have realistic expectations.
4. Set up your tolerance.
5. Try not to run out of patience.
1. Take up financial adviser.
In the situation where your money depends on the performance of the markets even more heavily, you are going to have to cash some of it out and hire yourself a financial advisor – a person who is going to help you navigate a difficult market situation as well as review and improve your trading portfolio.
In a bear market a financial advisor might not be obligatory, but having a second opinion, especially an expert opinion is going to make all the difference in the world for you and your finances, trust me.
You can also rely on the support team of your trading signals provider and/or your broker.
2. Do not panic.
Panic is your enemy is every situation. But in a bear market it is on the top of the list. You are going to have to remain calm and cold-minded. If you are going to panic, you are not going to be able to think straight and that is going to make you lose. Is that what you want?
No. Never.
That is why NO PANIC is something that you should print out and hang on your wall as a poster – just to have a constant reminder to act calmly.
3. Have realistic expectations.
If the market goes down and you refuse to leave it – expect to lose just as much as the market. Do not expect your portfolio to grow when the market drops down 15 percent. Be glad if you lose 5-7 percent only in a situation like that.
That’s right. Having realistic expectations is going to help you in every market, but in the bear market especially.
4. Set up your tolerance.
You are going to have to set up risk- and losing tolerance. What is your limit? How much does your favorite asset have to lose for you to abandon it? How much is your portfolio going to have to drop for you to stop trading for the week? How much consecutive losses can you bare without damaging your finances?
These are all the question that you are going to have to look over with cold mind [see point №2] and answer them. Of course, the answers you give might not be the best and they might not have the best effect on your winnings, but at least you are going to be successfully protected from losing more than you can afford to.
5. Try not to run out of patience.
Bear market can be very resilient and very clingy. All you need to do in it is to wait it out. There is no way that you can influence it and the only thing that you can do is to go with the flow. Do not lose your patience of your nerve.
Just trade and use your trading signals – that is going to make you as protected from the volatility and falls as you can be in the conditions of a bear market.