When To Implement Bear Market Trading Ideas

The time to come up with bear market trading ideas is before a bear stock market decline occurs.  A bear market is defined as a 20% or greater sell off in major stock market indexes.  Bear markets usually occur in conjunction with economic recessions.  Tracking economic conditions for signs of a pending economic recession is how stock traders decide when to implement bear market trading ideas.

While it is nearly impossible to call a stock market top, it is very important to time the implementation of bear market trading ideas, so that bear market trades are put in place when an economic recession looms on the horizon.  When a recession occurs, it is highly likely that a stock market rally will end and a bear market will take hold of the stock market.

Some Bear Market Trading Ideas

The following are some bear market trading ideas that stock traders can utilize to try to make money during a bear market sell off.  These bear market trading ideas include stocks, mutual funds exchange traded funds (ETFs), and options.

• Buy Defensive Stocks – Defensive stocks, such as consumer staple stocks and utilities stocks, often outperform the overall stock market during a bear market decline because people still buy consumer products such as paper towels and they need utilities during a recession.
• Buy Bear Market ETFs and Mutual Funds – Bear market ETFs and mutual funds increase in value as stocks decrease in value during a bear market.  Bear market ETFs and mutual funds either sell stocks short or use financial products, such as put options, to establish bearish positions in the stock market.
• Short Stocks – Shorting stocks is a bet that stocks will decline in price and the short stock positions can be covered (stocks purchased to cover the short) at a lower price.  Shorting stocks ahead of a bear market decline can be highly profitable; however, the risks associated with shorting stocks need to be understood by a trader considering shorting stocks.
• Buy Put Options – Put options that increase in value as stocks and the stock market decline can be purchased for individual stocks or stock market indexes.  Put options are one of the most speculative bear market trading ideas since they can expire worthless, if the stocks or stock market indexes they are written against do not decline before the options expire, and therefore should only be used by traders that understand the risks associated with buying put options.

Once bear market trading ideas have been considered and bear market trades have been established, a trader has to determine where to exit their bear market trades for profits.  It is important not to hold onto bear market trades throughout an economic recession, since a bear market decline usually ends well before a recession ends.  Bear market trades that are profitable should be closed when a recession appears to be nearing a bottom to lock in bear market trading profits.

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