In this article today I'd like to discuss several tips, tricks, and tactics that just about anybody can use to help make money in a bear market or down stock market.
When it comes to investing in the stock market there are basically just two main scenarios or overriding themes that you'll have to deal with. The first theme is a bull market and in a bull market stocks are increasing across the board in nearly every sector. In fact a bull market simply means that on average the stock market is consistently increasing.
The other main scenario that you'll have to deal with is a bear market and in a bear market stocks are dropping across the board and in fact that's what we're in at the moment since the recession that began in 2008 and has continued into 2010.
Many investors get scared and run away during a bear market, simply selling all of their stocks, hunkering down, and waiting for the pain to go away and the market to flip back into bull market mode. Unfortunately when an investor does this, they miss the opportunity to make huge amounts of money because when the stock drops low enough it can become an incredible steal.
Imagine if your favorite stock used to trade at $100 a share and you bought a whole bunch of it. Now imagine that a bear market swooped in and that same stock now trades for $50 a share. If you loved the stock at $100, now you can get it at half-price! Let's face it, that stock has nowhere to go but up; hopefully.
There is one thing that an investor needs to be aware of when investing during a bear market. I'm talking about a bear market rally. A bear market rally is when the stock market suddenly begins to jump during a bear market. The nature of the market is cyclical; it moves from bull to bear, from expansion to recession. That's the nature of capitalism and it's supposed to work like that.
The problem is, the stock market can jump up during a bear market and fool people into thinking that the bear market is over and we have moved into a new bull market. In fact we have not moved into a bull market, we have merely experienced a bear market rally where the stocks temporarily increase across the board.
Investors sometimes foolishly buy heavily on a bear market rally thinking stocks are about to go up only to find that a short time later the stocks have dropped back down to their original bear market values, wiping out all of the gains that investor may have just received during the rally. So keep an eye out for bear market rallies. It's good to buy at the beginning of a bear market rally and then sell once the stocks have appreciated in value but before they drop back down again.
So there you have several very simple tips that anybody can use to help make money in a bear market.
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