Do you want to learn some tips to survive and make money in a bear market? Market volatility is inevitable and also impossible to forecast. So does bear markets.
That’s why it’s always advised to look after your downside even in good times so as to be protected in case the market moves against you.
Bear markets are common in a market cycle and also considered as a part of life. After going through this you will not only be able to just survive but will also learn to thrive from it.
What are the 5 Things to do in a Bear Market?
Whenever the market starts to fall there a lot of news starts happening and people try to give in their minds and try to push their thought process into other minds. So it’s a very personal request to all to beware of all these thoughts and people and do not fall into these superstitious things.
So, let’s get back to 5 things to keep in mind while trading in a bear market:
➤ Evaluate your Risk tolerance:
The very first strategy in a bear market is to evaluate your risk tolerance. Whenever people started investing in the stock market, everyone starts with thinking of starting something new by investing in Stock Markets. No one starts making money in the beginning. So with all these means, we can say everybody is mentally prepared for some losses or there could also be a possibility of some gains.
People do make some money when markets go up and as per the record, there has been a fantastic growth or the bull rally in the market since 2009 is growing only until 2020 due to COVID-19. If any of these uncertain events cant make you sleep in peace, it means that you could have invested more than your risk capacity. So what happens here is – if the market’s fine, everything seems fine but when market stats starts crashing down we all start doubting our last investing mistake. So, always evaluate your risk tolerance before starts investing.
➤ Hedge using Futures and Options:
You can always be hedging your position by looking at futures and options. There two things you need to understand-
a. Investors should ideally go short if there’s a fall in the market, so investors can short the future.
b. Buying puts comes in options and if we talk about futures then investors need to short the Nifty.
Those who have just entered into the stock markets find it difficult to understand but it’s alright as futures and options are a little bit advanced. But for those who are already in the market, it’s a very good thing to do. For example- If you have invested in equities and your portfolio is going down, then How can you hedge? Well, it’s simple, hedge by using a put option- You should buy a put or you should do a short-selling for your futures in the Nifty.
So, if the nifty fall, automatically your profit increases. So, this increased profit compensates for the loss of amount in your portfolio. Again we are repeating ourselves to those who just entered into stock markets, the strategy no 2 might be a bounceback for you. But don’t worry we have a separate topic for you on Futures and Options.
➤ Maintain a Good Level Of Equity:
It’s very important especially in the falling market that is not to miss any opportunity of investing in stock markets & What the status of the Market? As in April 2020, all technical analysts had failed, all records had been broken due to COVID-19, the bad news keeps coming from the news. It could be a short impact but if the market fails to revive itself resulting in breaking the second support as well, then there’s a great chance of the market falls further.
So, in these kinds of scenarios, you can enter the market in very small quantities and for that, you should have an ample amount of liquidity. Let me tell you my little secret if you have Rs 1 Lakhs to invest don’t invest 1 lakh in one shot, you should start by 1/10 of the amount. So this gives you another opportunity to invest in the next Rs. 10,000 when the market hits another lower. This is called average-cost out in Stock Market. So this results in lowering your average cost price so whenever the market starts pulling up, you can start making profits or achieve a break-even point at a very early stage.
Study here means you should keep learning from the past, for example, the events that happened in 1992 (Harshad Mehta Scam), 1999 (Dot-com Bubble Burst), 2008 (Subprime Crisis) all these events are an example of where markets were crashed. The majority of investors starting seeing markets falling, down, and down and their investments would be soon 0 that can never be happened as there’s always a point when the market starts gaining. As the market did in 1992, 1999, 2008.
So, will it recover in 2020? Of course, yes be patient, study what went wrong in the past, how the markets recovered, what was the strategy adopted by investors to recover, or to get benefits during such up or down moves. So, if you study well then you can earn in both scenarios i.e., both up or downtrend.
➤ Do Nothing:
Sometimes doing nothing is good for the future, but how do we do know when to do nothing? To help us out, there is something called the Volatility Index (VIX). Volatility is Ups and downs in the market. For India Volatility Index is available over the internet, you just need to search for the same. Whenever VIX is high i.e., 20 or above means the Ups are higher so does the lows are higher. You can see big movements in Intraday or during the day trade. If you are a risk-averse person, it is preferred to do nothing just wait if Vix is above 20. Do nothing, stay safe.