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Everywhere you turn, the current bear market is being compared to the one that started back in 1929.
Check out the chart to the left, which shows how that particular bear looked.
The percentage decline was 89.2% from top to bottom, and it lasted 714 days.
It’s hard to say how long we will have to endure this time around, so I’ve complied some survival tips to help traders get through
this difficult period.But before I share my survival tips, I need to make a quick point about emotional trading.
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Don’t Give In to Fear … or Greed
Fear is a learned response to a particular event or probability. In the case of trading, when a trade goes bad, the regret and frustration
can carry over into the next trade. Or, worse, the fear is so consuming that you don’t even enter your next trade.Greed creates the opposite problem. As much as we all love having consecutive winning trades, it can result in the ego growing,
and that feeling of invincibility can overcome our logic.This can lead into trades that you normally would not have entered, whether as impulse buys or by putting more money into a trade
than you typically would, in hopes that you can "double up to catch up".
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Emotion Free Trading
While fear blinds us to opportunity; greed blinds us to danger. Our emotions cause us to only see the part of the picture that our
beliefs allow us to see.It’s important to recognize your emotions and, more importantly, how they affect your investing and trading approach.
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Bear-Market Rule #1: Good news in a bear market is like smoke in the breeze (i.e., soon dispersed)
Don’t buy into analyst upgrades or recommendations. These can kill you.
Every person reading this has access to some kind of trading platform, trading tools or systems that afford instant access to the
financial markets. Good news like upgrades in bear markets typically has about five minutes of fame.
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Bear-Market Rule #2: Bear markets are not a time to learn how to “day trade”
A bear market is not a good time to try to learn how to day trade in an effort to recoup losses — no matter how many times you hear
that "this is a traders’ market."
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Bear-Market Rule #3: Accumulation days (there may be three or more in a row) are shorting opportunities
OK, accumulation days are shorting opportunities, but resist being aggressive until the S&P 500 (SPX) shows a 3-day and 5-day moving average bearish cross.
Remember that it’s typically 50% market, 25% sector and 25% stock as far as direction. But some could argue that in bear markets
it’s 75% index, 15% sector and 10% stock.
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Bear-Market Rule #4: Chart patterns (unlike ice cream) come in just two flavors: continuations and reversals
Reversal patterns mostly form in weak trends. If the trend that the market or stock you are watching has been strong, then chances
are that any pause is just a consolidation before the next leg down.
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Bear-Market Rule #5: There is no such thing as “safe sectors”
Sure, each bear market brings sector rotation. But make sure if you are playing this game that you don’t have the flexibility of wood.
And when the music stops, quickly find a chair!What I’m saying is that you must be flexible so you are able to change with the markets. The best traders are those who are nimble
and approach the markets without bias.
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Bear-Market Rule #6: Your stop-losses are YOUR stop-losses
The pain of being down 8% in a bull market is no different than being down 8% in a bear market. If your risk tolerance requires you
stopping out at 8%, then be consistent in any market you trade.It takes greater emotional balance to trade a bear than a bull. So, always manage your risk — just remember that, in the markets,
your money is always at risk.Great traders manage emotions and risk. Only you know your risk tolerance, and it’s you who controls what happens between the keyboard
and chair.
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Bear-Market Rule #7: Bear markets are generally slow-moving affairs
However, stocks in bear markets can move much faster than you think, which is the reason that volatility rises drastically.
But we need to keep the time we spend in a bear in perspective. Unfortunately, bear markets last much longer than most are willing
to wait, and they move their money to the sidelines.
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Bear-Market Rule #8: Market capitulation is very difficult to measure
Market capitulation is more a state of mind than a specific set of market conditions. Hence the market maxim, "Bear markets end when the last bull throws in the towel, not when bears turn bullish."
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Bear-Market Rule #9: Bear markets drain emotional capital much faster than bull markets.
Bear-market volatility will suck your energy at twice the rate of a bull. Rule: Take twice as many breaks from trading the bear as
from trading the bull.
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Bear-Market Rule #10: Have sufficient, liquid funds
Over-leveraged and under-capitalized traders are also called "bear food." Make sure you’re not edible.
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A Bear-Market Rally is Not a Bull Market
In general, we all want to be bullish, and are eager to see any upward market movement as a rally, even when it’s not.
After a volatile beginning to the year, we are all somewhat gun-shy, especially in the face of mixed economic messages.
Regardless of your current opinion, you are best-served by feeling with your heart, while investing with your head.
Are fear and greed driving your investment decisions right now, or are you in control of your emotions?
If you’re not sure, I’d recommend taking a step back and looking at the market from a different angle … an unemotional one.
More on trading options:
     Get Better Trade Execution Here
     7 Stimulus Trades No One is Talking About
     10 Stocks to Fall in Love with Again
