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How to earn profits in a bear market
Publish Date: June 12, 2019
By: Sandhya Kannan, Head – Content
When stock prices register a consistent fall of 20%, it signals a bear market. This usually means the share market is in for a hard time.
What should you do when the plunges? Here are ways to earn profits even during a bearish phase:
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Hunt for good and reliable stocks. Quality stocks tend to recover quickly and get back on the growth track. But when bad stocks decline, their price keeps falling. So, keep your purchase of bad stocks at a minimum.
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Check bond ratings. A rating of ‘AAA’ signifies the highest level of creditworthiness. Ratings of ‘AA’ and ‘A’ signify ‘investment-grade’. Bonds with lower ratings are better avoided in a bear market.
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Diversify your portfolio. A varied portfolio helps you hedge against risk. If one set of stocks performs poorly, then the others can bolster your earnings. A sector rotation approach could also help you beat downturns in specific sectors.
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Use margins with care. The margin facility can be a powerful tool if you use it right. For instance, you could use it to acquire stocks that pay dividends in a bear market.
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Take advantage of call and put options. This is a great time to profit from call options. But remember, it comes with an expiry date. You could also write put options when the market plunges. Buy those stocks later at a much cheaper rate.
Try short positions. This is a useful investment strategy in a bear market. Here, you borrow shares and then sell them in anticipation of a fall in stock prices in the near future.
Related: Learn about algorithmic trading
- Why do Indians worry about the US markets?
- How to read the trend in stock market indices
- Trade via mobile with Kotak Stock Trader
- Take stock of the top trending stocks
- Take the emotion out of investing
Bottom-line
Use the right trading tools and do your research in a bear market. This will help you to make a thorough assessment ahead of a trade. For starters, you could simplify your stock trading experience by opening a Trinity Account.
Most importantly, have patience. Stocks that survive a bearish market are usually ready to face a bullish one. Just keep monitoring the share market on a regular basis.
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