What You Should Know About Bearish Markets

Knowing about bearish marketsThere are many terms in the stock market, among them we find the term bearish.

Before I go any further it’s best if I can put a short definition next to it.

What are bearish markets?

It’s a down trending of 20% or more lasting at least 60 days in an equity index. Don’t get it wrong, there’re also one term called correction. This one is when it lasts less than 60 days, however, it does hurt us the same way as bearish markets do.The only difference is that it lasts a shorter time, which delivers us faster.

Wall Street Survivor states “The most famous bear market in history is also known as the Great Depression of the 1930′s. When bear markets arrive they are usually accompanied by other financial negatives like recession, unemployment and inflation. Bear markets are filled with negativity.”

It’s not too difficult to recognize a bear market, it’s also not something you’d be seeing a lot of. We’d see bear markets when the economic isn’t stable.

Stock’s investors stop buying and those who are shareholders start selling. This in turn causes the market to be in a declining mode. That’s when we may see a bearish market.

There’re several aspects in a bearish market that you should familiarize yourself with. This post is intended to expose you to some of them.

Now the question that remains is how could you spot bearish markets?

If you’re already a stock’s trader you may already know how often we have to use charts and patterns to help us make our decisions.

You’ll need a little help from charting patterns as well to know when a bearish market is coming. This one is called the bearish engulfing pattern.

This pattern consists of two candlestick patterns. The first one is white which is very short followed by a larger black one. The name comes out from this pattern because it looks like the black candlestick kind of engulfs the smaller white candlestick.

This bearish engulfing pattern usually tells investors that there’s a bearish market followed. Most experienced traders use this technical analysis very often. There’s a good reason why it’s used by those who are experienced, it requires tests and trials in order to get it right.

My advise to you is to always practice with any technical analysis that you’re going to use for your trades before you actually start using it. That can save lots of your hard earned money.

The bearish engulfing pattern should not be an exception because you need to practice with it. Like the old quote says “Practice makes perfect,” it’s true the more you practice the better you’ll become in anything you’re doing.

You may be thinking right now, “How the heck am I going to practice with a stock’s chart signal?”

If you have never heard of that before, allow me to be the first one to tell you this. There’re stock’s games for that just like all the other games.

Here’s a little list of where you can practice your stock’s trading skills.

1-  Market Watch

2- How The Market Works

3- SmartStocks

4- Wall Street Survivor

These sites are free for the purpose of education. Register with either one of them or you can look up for some other ones yourself if you’d like. As you’re practicing you’ll eventually get better at it, and when you do get better there’ll be a greater chance for you to make lots of money trading.

Because you’ll be putting your skills to work and those skills have already been put into practice.

Can you still make money in bearish markets?

This one is a very interesting question because you don’t trade stocks just for the sake of it. We all trade them to make money, that’s the only reason we do. If it wasn’t the case we would’ve never chose to risk losing our money in order to double or triple that money.

To answer to this question, you can still make money in bearish markets, however, it gets harder to do so. Although it will be more difficult than it already is to make money trading penny stocks in a bearish market, it’s definitely not impossible.

Here are some tips to keep in mind:

  • When you make profits during a bearish market don’t wait for it to be more. Take your profit as soon as possible, it’s important.
  • Trade in pairs to help your portfolio.
    • When you’re trading in pairs you’re buying two different stocks from the same sector. One is going long while to other one is going short. This way you can cover your loss if you have to, but it doesn’t always work.
  • Use the trend to make your trades.
    • Buy when the trend is going up, sell when the trend is going down. That’s how careful you’ll have to be if you want to have a chance to make something.
    • Or you can buy short by following the trend as well.

To conclude

Trading in bearish markets can be very difficult, but if you’re an experienced stock traders you may be able to make money from them.

Luckily, we don’t see bearish markets too often, otherwise there would be no point in trading. The worse bearish market we ever seen was during the great depression.

You can still make money in bearish markets as you’ve just read, but it won’t be an easy thing to do. With the use of the bearish engulfing pattern you may be able to predict when a bearish market is coming.

Having this type of signal available to you could be one of the greatest types of help you could ever asked for. But if you’re not using it the right way, or if you’re not using it at all when the time asks for it, you may be the one hurting your portfolio.