How To Make Money In Bear Markets

How to Make Money in Bears Market

With the lows of the great bear market of 2008 and the pandemic collapse of the banking system, much has been written about profiting in bear markets. Much of it is worthless.

You can spend a half-hour Saturday afternoon and listen to Suzy Orman tell you to ‘average down’ or ‘ride out the storm’ or do any one of sundry financial industry axioms.

Or you could wait for Warren Buffett to release one of his ‘well-timed’ calls to buy stocks (generally before he starts selling).

The purpose of this article, by contrast, is to provide sound alternatives and profitable, real-world methods for battling the bear.

There are three ways to do this. The first is to find a well-tested, viable market-timing strategy and sidestep the bear market altogether. Ed Burke, the winner of the 2008 CNBC MILLION DOLLAR PORTFOLIO CHALLENGE, offers a simple strategy for using daily and weekly charts of broad market indexes to effectively time the market.

He has demonstrated that his system would have had you safe and sound in cash long before any significant devaluation occurred. This type of market-timing tool can be incredibly accurate. Although there are occasionally mixed signals, for the most part, it is impossible to be holding long positions in a confirmed market downtrend, unless you decide to do so.

Why not sit in T-bills or collect compound interest while your friends contemplate late retirements?

Believe it or not, it is possible.

Your second option is to use a market-timing strategy similar to the one mentioned above and employ a short setup entry as part of your trading business.

In many cases, there is a correlated inverse to a profitable, tested long-trend trade.

With only a few restrictions, you can outright profit from the landslide.

Put option contracts are a great vehicle for this strategy but if you decide to sell short shares of common stock you might even collect interest on the debit.

The last and simplest method for profiting in a down market is…that’s right: ensure your trading system takes only acceptable, pre-determined losses which fall within your risk tolerance.

Yes, it is really that simple.

There is a double benefit to this method:

1) your system should incorporate some type of market-timing strategy that will statistically reduce your exposure to long signals in a confirmed broad market downtrends; and

2) if you never lose more than 5% per trade and maintain 5 different positions in your account, you’ll never risk more than 1% on any one transaction. You can live with that type of risk control.

Blue skies will come again.

Until then, enjoy the rain.

Your friends will applaud your stock market wizardry, you’ll be a hit at parties, and your spouse will start winking at you again. Well, at least when you see Suzy you can hit the mute button.