There are no guarantees to this question, but we do have history and past technical indications to provide us a few guidelines. Trading strategies applied during a bull market simply won't work during a bear market.

They may work on a few select industry groups and stocks, but the game has changed for most areas of the market and we have to change with it.

Emissions trading - Wikipedia

So let's start with a few basic rules I follow:. Netflix NFLX is a great example.

During the 7 year bull market, NFLX rose from 5 bucks to its December high of These high-flyers get crushed as money rotates to safer investments. If you're going to own stocks like NFLX during a weak or bearish market environment, you have to study the charts, find strong support levels and have the patience necessary to allow them to reach price support.

Let's continue the discussion on NFLX. We certainly could see a sizable bounce in NFLX prior to reaching the 70 level, but it's difficult to predict where that bounce could take place from. Therein lies the major risk. If you buy NFLX at 82 and find yourself down 7 bucks on it next week, emotional trading ramps up and then you're in big trouble.

Oversold conditions can become more oversold in a bear market. Remember, this isn't a bull market any longer - at least not based on the signals I've been seeing the past few months. A negative divergence printed on the weekly chart on its most recent price high, a bearish sign in itself.

That suggested buying momentum was waning and it certainly proved to be a solid warning signal. Looking back, however, we can see there was serious price resistance in and early near 70 that was cleared with a very heavy volume candle that coincided with earnings in the second quarter of In a bear market, I'd study the charts of any aggressive stocks you like, then only pull the trigger if that key level is hit. After pulling the trigger, I'd then have a very tight stop in place, perhaps in the area to guard against big losses.

As we've already seen, these aggressive stocks sell off fast. Pain is inflicted as quickly as possible and that enables market makers to benefit from emotional trading.

Sticking with the NFLX theme here, you must understand you're trading a consumer discretionary XLY stock. Currently, this sector is getting trounced. Nowhere is it more evident than by comparing the XLY vs. Check out this chart:.

How to Trade in a Bear Market - dummies

This should help to explain why stocks like NFLX are being crushed. The market environment dictates that we do not want to own NFLX. During bull markets, price support and key moving averages rule in terms of where key price reversals generally take place. To understand bear markets, you simply need to turn your computer monitor upside down.

Now it becomes price resistance and key moving averages. Let's look at the early stages of the last bear market that began in to illustrate:.

How to trade in a bear market - MarketWatch

Prior support becomes resistance as the green arrows and red arrow demonstrate. Be careful expecting too much from rallies. Check out the look of that weekly MACD as it fails to move above key centerline resistance and then rolls over.

The good news for the bulls is that price support is still holding. Unfortunately, that's about where all the good news ends. Money keeps rotating toward defense and that suggests to me that it's only a matter of time before price support is lost.

Should support be lost, then the price range will become price resistance while the declining 20 week EMA, currently at , will provide the next line of defense for the bears should price resistance be cleared. I believe the bear market has arrived. Job 1 during a bear market is capital preservation so try to remain objective about the big picture outlook and don't focus on the high volatility and big price swings we're likely to endure. That leads to emotional trading and, many times, losses.

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Additional Resources Store Members Terms of Service Privacy Statement Site Map. Click here to see the live version. What You Need To Know About Trading A Bear Market? Tom Bowley February 06, at So let's start with a few basic rules I follow: High growth stocks become extremely dangerous to own on the long side Netflix NFLX is a great example. Keep tight stops in play, especially on the long side Let's continue the discussion on NFLX.

Banking Profits In Bull And Bear Markets

So let's look at the NFLX chart: Understand the limitations of the sectors you're investing in Sticking with the NFLX theme here, you must understand you're trading a consumer discretionary XLY stock. Check out this chart: Beware key resistance on the major indices During bull markets, price support and key moving averages rule in terms of where key price reversals generally take place.

Let's look at the early stages of the last bear market that began in to illustrate: ChartWatchers is our free newsletter for individuals interested in technical trading and chart analysis. It is sent out twice a month via email. This blog contains early-access, preview versions of the articles that later appear in the official newsletter.

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