I have been reluctant to say this before, and I kept referring to the markets as "mixed" or "turbulent"
I think it is safe to say now that the market will experience bearish conditions, anywhere from a marked and distinct correction, up to an including a 'crash' similar to that of last year around this exact same time.
Many people worry when they see bearish conditions, but me personally, I prefer to see opportunities. This is going to be how I trade in order to 1) protect my cash 2) benefit from bearish market 3) set my self up for maximal gains when the market finally reverses.
Everyone is worries about the short term correction; where as the crash of last year made many people millionaires! They were ready to re-invest and buy new lows and the opportunities were phenomenal in March of last year. Sometimes, you may have hesitation and think, oh, stocks cant go that low, but just consider how each one of the stocks you trade did in March a year ago, and realize that this can happen again.
Lets start with this, what to do with your open long positions?
examine each position separately. Look at the charts and consider the levels of support.
a) Do you think they will hold at support? If you are only a little bit in the red, consider selling if you think it will continue to come down. b) keep the long positions for long term. All your favourite stocks are experiencing a correction. There is no reason to expect that you won't be in the green again in the future. For really good long term holds, consider saving money now, so that you can re-invest and price average at newer lows (only if there is no bad news or material changes in the particular holding)
If you are in a trade that is losing and you think its gona get worse, either cut it now, unless your willing to price average later. Taking a small loss now, frees up cash, which you will use to buy new lows in the same, or better stock picks later. That cash may end up doing more for you, that it would if you keep invested waiting for it to come back in the green.
Set a stop loss to trim or exit positions below key levels of support. If you see a stock has a very strong level of support, it can be beneficial for you to exit when that support breaks by using a stop loss. A break from each one level of support, can singal for drastic downfall in price as everyone's stop losses are triggered. This is compounded by other traders who re-think their positions after trading hours and continue to exit the next morning, etc.
2. Inverse ETF’s, PUT option contracts, and shorting stocks that will be hardest hit. These are 3 ways to make money as the market falls and the methodologies are very often the same as buying.
Please don't do any of this if you don't understand how shorting, or put options work really well.
Put options have a defined maximal loss. So I enter into small positions, hoping to benefit from large movment on the stock price in the negative direction. This way, my small position can be very benefical; however, it is safer because each position has a max loss of somewhere b/w 80-150 dollars for me.
Shorting the stock, is in my opinion, the riskiest thing you can do in the stock market. I never did it, and never will. It is the only way that your maximal loss can be unlimited, and your broker will visit you at home to take the shirt of your back.
I bought inverse ETF's (They are ETF's that play the short side of the markey, so they technically go up when the markets are going down) I also bought put options in Nio, AAL, BLNK.
3) Build into attractive long term positions, and build into them SLOWLY as the market is going down. This is the best strategy, and specially for beginners, as long as it is executed patiently and in a smart way.
Timing the markey is damn near impossible. And evidence shows that retail and banking institutions are bad at it, so dont kid yourself into thinking that you can buy at the very right moment.
For that reason, I slowely build into a position, only really getting fully invested when all the evidence shows that a reversal is happening, this way, my avg. cost as I accumelate into the position, is very close to the bottom that a stock had reached.
For an example;
Look at Tesla, which was just a week ago trading at 900.
I bought one single Tesla stock at $660. You may think one single stock is silly, and it is, because the risk is for it to go down to $200-$300, where as the benefit is capped at about $900 unless I hold for a long time.
But my strategy is not to benefit from my one single stock at $660. But rather to buy two more at $500, 3 more at $400, etc. for as long as it is coming down.
Only really putting the bulk majority of my position, when the signs show that everything is reversing.
Finally, and this is a suggestion that may not be possible for everyone. But if you can someway, somehow, work extra hours and make more money now. Do it, this is the pefect time to be sitting on cash, in order to buy into new lows, so that the money can work wonders for you.
If we crash for two weeks, I will be trying to do as much over time as possible so that the extra money goes right into the stock market. It will be worth it a year down the line!
Money makes money.
Happy trading folks, and remmember, dont throw all your money in there at once!
Thanks for sharing this guide! It's been featured in Editors' Picks.
Lord_Raximus
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How to invest during bearish market conditions: Buy Bitcoin.
All the other stocks and bonds....forget about it.
Many people worry when they see bearish conditions, but me personally, I prefer to see opportunities. This is going to be how I trade in order to
1) protect my cash - Bitcoin
2) benefit from bearish market - Bitcoin
3) set my self up for maximal gains when the market finally reverses. - Bitcoin
3) Build into attractive long term positions, and build into them SLOWLY as the market is going down. This is the best strategy, and specially for beginners, as long as it is executed patiently and in a smart way. - Bitcoin
colegrz
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@Lord_Raximus, except bitcoin is directly correlated to SPY and both are inversely correlated to the dollar. Not going to disagree with this advice because buying btc is always a good idea to me, but for a day trader looking to profit in a bear market idk :P
avemex
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@Lord_Raximus, Well if markets correct so will bitcoin eventually, as seen in the last years correction. high risk assets will be the first ones, money will be withdrawn from. besides my overall bullish sentiment on crypto, crypto bull markets tend to be really short and explosive compared to other asset classes, so the current cycle will probably end over the next few month. the only thing possible for big market correction is going to cash (low risk, low reward, easy to do), hedging through low risk investments like bonds or high risk through short positions (medium risk, medium reward, not so easy to do) or just liquidate all long positions and short the market without hedging (very high risk, high reward, very hard to do).
MrRenev
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@Lord_Raximus, PonziCoin is a leveraged long on the S&P500 with worse risk to reward, and no dividends. Also a criminal pedo ponzi scheme. If I want leverage on the S&P I buy THE S&P with leverage.
michaelovercash
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I use this same approach and have tuned 10k into 100k+ over a few years. That's chump change for some of y'all but it is bonus fun money + some long term storage for me... I pre-set limit orders to sell small amounts with a drop to near support levels, increasing the # of shares as the value goes down, so that the lower it drops, the more shares I buy, like your Tesla example. I do the reverse for the bull times : set limit orders to sell a little as it meets my high goal, with bigger sell orders the higher it gets - sometimes I just make a few hundred a day, but where there is a surprise spike (like the small coins do), those limit orders kick in and I capitalize on it, even if it corrects a minute later, the deal is done! Thank you TSX trader - good advice!
Fantastic post! "Timing the market is a fool's errand" & "it's time IN the market, NOT timing the market"
UnknownUnicorn15571923
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Some good advice here, but a few considerations about taking the other side of going long the market - which is hedging & trading, not investing.
A bear market is at least 20% decline on average for stocks. The S&P has dropped 3% since the sell off began, the Nasdaq 10%. Garden variety correction. Blink and this sell off could be over while you’re holding the bag putting your money into pricey time-sensitive tools like the UVXY, Direxion ETFs, leveraged instruments etc.
Many people stay long for tax reasons. So to protect my long positions through turbulent market conditions without cutting & running, use the options market, sell some puts.
There really should be some tax calculators bolted onto TradingView. A big part of trading & profit taking centers around capital gain/loss harvesting ramifications. To better understand how to truly invest and stay long, this stance toward markets needs to be considered as well, because you work side jobs all you want and sell hard your winners or (even slightly in the black) into a down tape, but a good chunk of that cash is going right into the hands of the federal government.
All out crashes like ‘29 are super rare now. There’s black swan events, taper tantrums, what-have-you. But these are very short lived episodes that past into distant memory. Keeping powder dry for these days is awesome. (mostly AH freak out limit-down mornings). Like Warren Buffet said best, “You want to be fearful when others are greedy and greedy when others are fearful.” -That is the best advice for building wealth during a bear market. But you dam sure need to do your homework on these companies before pulling the trigger. Or catch a falling knife 🤙🏽
Nemo_Confidat
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@jaredfrench, "All out crashes like ‘29 are super rare now." Yeah! So rare, as a matter of fact, that this coming one will be the first since then - 1929. (Do you people actually read what you post or literacy is not a recognized skill set around here?)