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 it plunges? Here are ways to earn profits even during a bearish phase:
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.
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.
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.
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. 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.
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.
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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