The stock market is firing on all cylinders, the interest rates are low and there is not enough money flowing in the economy. Due to the current situation, a lot of investors have lost money and are wondering whether they should sell or buy more. Trading is one activity that picks up in the bear market. A bear market will not last forever and it might be a good time to enter the stock market industry. Here are a few tips to help maximize your trades in bearish markets. 

Bearish market is a good time to enter the stock market industry.
Bearish market is a good time to enter the stock market industry.

Short sell

A good way to play in the bear market is to go short stocks. There will be overvalued securities you can target. Some of the large-cap stocks have seen the biggest gains in the past and they have hit high earning ratios. Bear markets can be difficult for stocks, when they go down, they can keep falling.

But when the stock goes down, it often falls into a severe decline and there are more and more investors who look into it.

It is best to short the stock and profit when it continues plunging. If you are a beginner, you might not have experience in this and it best to avoid short selling or seek the assistance of an expert. 

Play safe

A strategy that works for all is to move into safe-haven assets. Such assets do not move a lot but they usually go up when the market is in a panic mode.

It is less aggressive and the important thing here is to pick stocks that have a low risk or zero risks of ruin. Consider treasuries or gold, which is often considered as a haven. It can help diversify your portfolio and will keep your money safe. 

Look for dividends

Companies pay a dividend from their net income. The stock price is dictated by the market movement but the dividend is estimated by the company management.

If the stock price is down because of the market turmoil but if the company is strong, making a profit and paying a dividend, it is a good investment option for you.

Identify companies that have a history of dividend payment and take a look at their profit-generating capacity. Investing in a few high dividend-paying stocks will generate extra income for you. 

Use margins

A lot of investors do not use margin. If used wisely, it is a good tool. Margin is about using borrowed funds from the broker in order to purchase securities. When you use margin, you also add an element of speculation to the transaction. Buy dividend-paying stocks through margin. 

Buy long and short term puts

Those with an opinion that the bear market is going to continue to play and have long positions in the market, you can buy low-priced short and long term puts on top indices. A put will give you rights on 100 shares, it has a specific time period before expiry and carries a fixed selling price.

Since options increase and decrease by a large percentage as compared to stocks, a minor number of put contracts could offset the long stock position losses. You then have the choice to sell the put in an open market. However, you need to have experience in this strategy before you attempt it. It can be risky for a beginner. 

Find assets that rise in price

Carry out research and look for sectors, stocks, or assets which were up or held their place when the market was falling. Metals outperform at times and personal care stocks and food stocks also do well. You will have to look for companies that have a strong standing in the industry and stay put even in a declining market.

There are instances when a part of the market, like real estate and utilities, will do well, while other sectors are falling in value. Start to allocate your cash to sectors that have performed well in a decline because it will continue to perform well in the long term. 

You do not have to stress about the bear market. If you apply the right strategies and research well, you will do well during a bearish market. If you are a beginner, this is a good time to build your portfolio. However, it is best to carry out research and then make a decision.

Do not rush the process. Identify industries, sectors, and companies that can perform well even during a falling market. Do not put all your money into one stock. Always diversify your portfolio and invest in stocks across different industries. A bear market might sound scary but it is a good time to make money. 

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